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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file no. 1-7434
----------------- ------
AFLAC INCORPORATED
- ----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1167100
- ------------------------------------ ----------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1932 Wynnton Road, Columbus, Georgia 31999
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 706-323-3431
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
----------------------------------------------------------------------
Common Stock, $.10 Par Value New York Stock Exchange
Pacific Stock Exchange
Tokyo Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
--------
The number of shares of the registrant's Common Stock outstanding at March
18, 1996, with $.10 par value, was 142,142,286. The aggregate market value
of the voting stock held by non-affiliates of the registrant as of March 18,
1996 was $4,382,039,560.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART I Item 1 Exhibit 13 - pages 13-5 to 13-19 (Management's
Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)),
pages 13-32 to 13-39 (Notes 2 and 3 of the
Notes to the Consolidated Financial
Statements), and pages 13-50 to 13-51
(Note 10). The applicable portions of the
Company's Annual Report to Shareholders for
the year ended December 31, 1995, are
included as Exhibit 13
Item 2 Exhibit 13 - pages 13-18 (Cash Flow section of
MD&A) and page 13-41 (Note 5)
PART II Item 5 Exhibit 13 - pages 13-1, 13-2 and 13-48
(Note 9)
Item 6 Exhibit 13 - pages 13-3 and 13-4
Item 7 Exhibit 13 - pages 13-5 to 13-19
Item 8 Exhibit 13 - pages 13-20 to 13-58
PART III Item 10 Incorporated by reference from the
definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 8,
1996 (the Proxy Statement)
Item 11 Incorporated by reference from the Proxy
Statement
Item 12 Incorporated by reference from the Proxy
Statement
Item 13 Incorporated by reference from the Proxy
Statement
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AFLAC Incorporated
Annual Report on Form 10-K
For the Year Ended December 31, 1995
Table of Contents
Page
______
PART I
Item 1. Business................................................ I- 1
Item 2. Properties.............................................. I-14
Item 3. Legal Proceedings....................................... I-15
Item 4. Submission of Matters to a Vote of Security Holders..... I-15
Item 4A. Executive Officers of the Company....................... I-16
PART II
Item 5. Market for Company's Common Equity and Related
Shareholder Matters................................... II- 1
Item 6. Selected Financial Data................................. II- 1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... II- 1
Item 8. Financial Statements and Supplementary Data............. II- 1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... II- 1
PART III
Item 10. Directors and Executive Officers of the Company......... III- 1
Item 11. Executive Compensation.................................. III- 1
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................ III- 1
Item 13. Certain Relationships and Related Transactions.......... III- 1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... IV- 1
ii
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PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
AFLAC Incorporated (the Parent Company) was incorporated in 1973 under
the laws of the State of Georgia and acts as a general business holding
company. The Parent Company is a management company principally engaged,
through its insurance subsidiaries, in providing supplemental health
insurance products in the United States and Japan. In addition, the Parent
Company, through subsidiaries and a general partnership with American Family
Life Assurance Company of Columbus (AFLAC), operates in television
broadcasting. In 1994, AFLAC transferred its minor Canadian insurance
subsidiary to the Parent Company. As a management company, the Parent
Company oversees the operations of its subsidiaries and provides capital and
management services.
AFLAC Incorporated and its subsidiaries (the Company) have only one
significant industry segment - insurance. For financial information
relating to the Company's foreign and U.S. operations, see Exhibit 13, pages
13-5 to 13-19 (Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A)) and page 13-32 (Note 2 of Notes to the
Consolidated Financial Statements), which are incorporated herein by
reference.
The Parent Company's principal operating subsidiary is AFLAC, which
operates principally in the United States and Japan. AFLAC is a specialty
insurer whose dominant business is individual supplemental health insurance
with emphasis on cancer expense insurance plans. Management believes AFLAC
is the world's leading writer of cancer expense insurance. In recent years,
AFLAC has diversified its product offerings to include other types of
supplemental health products in both the United States and Japan. The Japan
Branch (AFLAC Japan) also sells long-term care plans, supplemental general
medical expense plans and a living benefit life plan. The United States
operation (AFLAC U.S.), in addition to cancer expense plans, also sells
other types of supplemental health insurance, including hospital intensive
care, accident and disability, hospital indemnity, long-term care, short-
term disability and Medicare supplement plans. AFLAC U.S. also offers
several life insurance plans.
The Company is authorized to conduct insurance business in all 50
states, the District of Columbia, and several U.S. territories and foreign
countries. The Company's only significant foreign operation is AFLAC
Japan, which accounted for 85% of the Company's total revenues in 1995.
On February 13, 1996, the board of directors declared a three-for-two
stock split to shareholders of record as of February 29, 1996, payable on
March 18, 1996. Share and per-share amounts have been adjusted to reflect
this split.
Insurance premiums and investment income from insurance operations are
the major sources of revenues. The Company's consolidated premium income
was $6.1 billion for 1995, $5.2 billion for 1994 and $4.2 billion for 1993.
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The following table sets forth consolidated premiums earned by class
offered by AFLAC in Japan and the United States for the three years ended
December 31.
(In thousands) 1995 1994 1993
---------- ---------- ----------
Premiums earned:
Health insurance $ 6,037,206 $ 5,148,406 $ 4,192,259
Life and other insurance 17,937 15,149 14,488
---------- ---------- ----------
Total U.S. and Japan
premiums earned $ 6,055,143 $ 5,163,555 $ 4,206,747
========== ========== ==========
The following table sets forth the changes in annualized premiums in
force for AFLAC health insurance for the years ended December 31.
(In thousands) 1995 1994 1993
---------- ---------- ----------
Annualized premiums in force,
at beginning of year $ 5,578,987 $ 4,460,076 $ 3,628,961
New issues including
policy conversions 965,321 922,773 801,937
Change in unprocessed
policies (107,287) 212,058 154,684
Lapses and surrenders (408,366) (347,020) (302,690)
Other (11,676) (129,932) (143,432)
Foreign currency translation
adjustment (179,096) 461,032 320,616
---------- ---------- ----------
Annualized premiums in force,
at end of year $ 5,837,883 $ 5,578,987 $ 4,460,076
========== ========== ==========
INVESTMENTS AND INVESTMENT RESULTS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities, issued by the Financial Accounting Standards
Board. Under the provisions of SFAS No. 115, fixed-maturity securities
available for sale are carried at fair value. Previously, fixed-maturity
securities were carried at amortized cost. Prior year numbers have not been
restated. The fair value of fixed-maturity securities available for sale
exceeded amortized cost by $2.6 billion and $820.9 million at December 31,
1995 and 1994, respectively. For additional information regarding SFAS No.
115, see Exhibit 13, page 13-34 (Note 3 of Notes to the Consolidated
Financial Statements).
The Company's investments (including cash) were $20.0 billion at
December 31, 1995. Since December 31, 1994, total investments, including
unrealized gains on fixed-maturity securities, increased $4.1 billion, or
25.3%. AFLAC Japan investments increased $3.6 billion (24.7%), while AFLAC
U.S. investments increased $416.3 million (33.1%). Since December 31, 1994,
total investments, excluding unrealized gains on fixed-maturity securities,
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have increased $2.3 billion, or 15.2%. AFLAC Japan investments increased
$2.0 billion (14.7%), while AFLAC U.S. investments increased $265.4 million
(20.3%). Net investment income of $1.0 billion in 1995 continued to be a
growing source of revenues and earnings for the Company, increasing $186.1
million in 1995 over 1994 and $149.6 million in 1994 over 1993. It is
generally AFLAC's policy to invest in high-grade investments, principally in
government, and high-quality public utility and corporate bonds.
AFLAC primarily operates within the investment environments of the
United States and Japan. Although aspects of these two financial markets
are slowly converging, they remain fundamentally different. For example,
differences in asset selection, liquidity, credit quality, accounting
practices, insurance regulations and taxation affect the way the Company
invests and purchases securities. The challenge is to integrate the varied
market characteristics of Japan and the United States into a unified and
coherent investment strategy. The Company has streamlined and integrated
the organizational structure of investment operations into a single
functional unit and has set specific worldwide criteria regarding credit
quality, liquidity, compliance with regulatory requirements and conformance
to product needs.
INVESTMENTS - JAPAN
During 1995, 90.3% of AFLAC Japan's yen cash flow available for
investment was allocated to yen-denominated fixed-maturity securities, while
the remaining 9.7% was invested in dollar-denominated securities. Of the
total amount invested in yen-denominated securities in 1995, 26.0% was
invested in Japanese government bonds at a yield of 3.84%, 33.7% was
invested in the longer-dated private sector at a rate of 5.07%, 6.0% was
invested in municipal bonds at a rate of 3.95%, and the remaining 24.6% was
invested in assorted sectors of yen-denominated fixed-maturity securities at
an average rate of 4.19%.
At year-end 1995, Japanese government bonds accounted for 37.7% of
AFLAC Japan's total investments (at amortized cost). Twenty-year government
bonds made up the majority of AFLAC Japan's government bond holdings. AFLAC
Japan continued to use longer-dated corporate instruments in 1995, which
provide a better match of asset and liability durations, and these
instruments accounted for 20.3% of total investments in Japan at year-end.
At the end of the year, municipal securities represented 5.3% of the total
investments, while utility bonds represented 18.1%. Other assorted sectors
accounted for 11.1%, and dollar-denominated securities represented 7.5% of
AFLAC Japan's total investments.
The Company increased its commitment to the dollar-denominated
portfolio of AFLAC Japan's invested assets during 1995. AFLAC Japan added
$307.9 million to this portfolio at an average yield of 7.55%. AFLAC
Japan's dollar-denominated portfolio represented 7.5% of total investments
in Japan, or $1.3 billion at the end of 1995, compared with $951.3 million
at the end of 1994. Investments in dollar-denominated fixed-maturity
securities provide certain tax and yield advantages to the Company.
The Company continued to avoid the Japanese equity and investment real
estate markets in 1995. AFLAC Japan's equity portfolio accounted for only
.1% of invested assets at year-end, and the Company does not expect this
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portion to increase in 1996. The Company also does not anticipate any
change in the current level of mortgage loans on Japanese real estate, which
was less than .1% of total investments at year-end.
INVESTMENTS - U.S.
Profits repatriated from AFLAC Japan to AFLAC U.S. totaled $140.5
million in 1995, up from $132.9 million in 1994. Of the $140.5 million in
1995, $21.2 million was transferred to the Parent Company. Repatriation
benefits consolidated operations because higher investment yields can be
earned on funds invested in the United States. Also, income tax expense is
presently lower on investment income earned in the United States. The
Company expects future profit repatriation to continue to have a positive
impact on its consolidated net earnings.
AFLAC U.S. continued to focus on purchasing securities that emphasize
safety and liquidity. AFLAC U.S. maintained its overall investment quality
throughout the year. Almost half of the fixed-maturity portfolio was rated
"AA" or better at the end of the year.
Including profit repatriation, AFLAC U.S. invested $660.7 million in
1995. Of that amount, approximately 46.3% was invested in U.S. government
or agency securities at an average yield to maturity of 7.82%, 42.4% was
invested in corporate fixed-maturity securities at 7.66%, and 5.1% was
allocated to various other sectors at an average yield of 7.17%. We also
added approximately $41.1 million, or 6.2% of total funds available for
investment, to the AFLAC U.S. equity portfolio.
At the end of 1995, fixed-maturity securities continued to dominate
AFLAC U.S. total investments. Fixed-maturity securities represented 85.0%
of total investments at the end of the year. Within that category, U.S.
government and agency securities accounted for 17.7% of the holdings, while
corporate securities were 58.9%. Equity investments made up 5.7% of total
investments. Mortgage loans on real estate remained immaterial.
For information on the composition of the Company's investment
portfolio and investment results, see Part IV, Schedule I, and Exhibit 13,
pages 13-15 to 13-19 (discussions relating to Balance Sheet and Cash Flow)
and pages 13-34 to 13-41 (Notes 3 and 4 of Notes to the Consolidated
Financial Statements), which are incorporated herein by reference.
INSURANCE - JAPAN
The following table sets forth AFLAC Japan's premiums earned by product
line for the last three years ended December 31.
(In thousands) 1995 1994 1993
---------- ---------- ----------
Premiums earned:
Cancer expense $ 4,752,338 $ 4,054,697 $ 3,259,705
Other accident and health 440,635 316,395 224,555
Life insurance 2,378 - -
---------- ---------- ----------
Total AFLAC Japan
premiums earned $ 5,195,351 $ 4,371,092 $ 3,484,260
========== ========== ==========
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The following table sets forth the changes in annualized premiums in
force for AFLAC Japan health insurance for the years ended December 31:
(In thousands) 1995 1994 1993
---------- ---------- ----------
Annualized premiums in force,
at beginning of year $ 4,718,783 $ 3,672,594 $ 2,914,428
New issues including
policy conversions 690,170 680,879 576,127
Change in unprocessed
policies (105,496) 209,392 157,142
Lapses and surrenders (200,507) (163,047) (145,567)
Other (23,075) (142,067) (150,152)
Foreign currency translation
adjustment (179,096) 461,032 320,616
---------- ---------- ----------
Annualized premiums in force,
at end of year $ 4,900,779 $ 4,718,783 $ 3,672,594
========== ========== ==========
INSURANCE PLANS - JAPAN
AFLAC's insurance is supplemental in nature and is designed to provide
insurance to cover the medical and nonmedical costs that are not reimbursed
by other forms of Japanese health insurance coverage.
The cancer expense insurance plans offered in Japan are basically daily
indemnity plans, providing a fixed amount for each day the insured is
hospitalized for treatment of cancer. The plans differ from the AFLAC U.S.
cancer plans (described on pages I-9 and I-10) in that the Japanese policies
also provide death benefits and cash surrender values (the Company estimates
that approximately 28% of the premiums earned are associated with these
benefits).
In 1992, AFLAC broadened its product line with the introduction of a
new care product, "Super Care." Super Care provides periodic benefits to
those who become bedridden, demented or seriously disabled due to illness or
accident. This plan is offered with several riders, providing death
benefits or additional care benefits to enhance coverage. Prior to the
introduction of the Super Care plan, AFLAC marketed a plan that primarily
provided dementia care benefits.
In 1995, the Company introduced two other products in Japan. The first
product is an improved medical expense policy. It is similar to hospital
indemnity insurance products in the United States and provides cash benefits
to policyholders when they are hospitalized. The market for medical expense
coverage in Japan is very competitive, but the Company believes the revised
policy will give AFLAC Japan's agents greater flexibility in product
offerings.
AFLAC Japan also introduced a new living benefit life plan. This
product is a life insurance policy that provides lump-sum benefits when
policyholders experience heart attack, cancer or stroke. The Company is
offering this product in two forms - as a stand-alone policy or as a rider
to the cancer plan. Marketing efforts for living benefit life primarily
focus on the sale of the rider. Introduction of the rider began in late
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1995. AFLAC Japan sold more than 406,000 living benefit life riders in the
last four months of the year. Sales of the rider for the year exceeded $77
million in new annualized premium. The Company anticipates very strong
results from this new product in 1996, its first full year of availability.
Due to the continued low level of available investment yields in Japan,
the Ministry of Finance has permitted insurers to increase premium rates on
new policy issues in recent years. AFLAC Japan increased premium rates by
an average of 16% on all cancer policy sales made after July 1, 1994.
Premium rates on care policy new issues were increased by an average of 10%
in both November 1993 and 1995. As a result of continuing low yields, the
Company expects to increase premium rates on all new policy issues by an
additional 10% beginning in the second half of 1996.
AGENCY FORCE - JAPAN
The development of a "corporate agency" system has been important to
the growth of AFLAC Japan. Affiliated corporate agencies are formed when
companies establish subsidiary businesses to sell AFLAC products to their
employees, suppliers and customers. These agencies help AFLAC Japan reach
the employees of almost all of Japan's large corporations. AFLAC has no
ownership interest in these corporate agencies.
AFLAC products are also sold through independent corporate agencies and
individual agencies that are not affiliated with large companies. At
December 31, 1995, there were 5,224 agencies in Japan with 20,375 licensed
agents. Agents' activities are principally limited to insurance sales, with
policyholder service functions handled by the main office in Tokyo and 47
sales offices located throughout Japan.
COMPETITION - JAPAN
In 1974, AFLAC became the second foreign (non-Japanese) life insurance
company to gain direct access to the Japanese insurance market by obtaining
a license to do business in Japan. Through 1981, AFLAC was the only company
in Japan authorized to issue a cancer expense insurance policy. Since that
time, several other life companies have been permitted to offer cancer
insurance. However, AFLAC remains the leading issuer of cancer expense
insurance coverage in Japan, principally due to its lead time in the market,
unique marketing system (see Agency Force), low-cost operations and product
expertise developed in the United States. AFLAC has been very successful in
the sale of cancer expense policies in Japan, with over 12.2 million cancer
policies in force at December 31, 1995.
During 1994, the governments of Japan and the United States held a
series of trade talks. The U.S.-Japan Framework Agreement negotiations
discussed the possibility of opening various Japanese market sectors,
including insurance, to expanded foreign competition. During the
discussions, the Japanese government agreed to avoid any radical changes in
the third sector of the insurance market until a substantial portion of the
life and non-life insurance sectors are deregulated. AFLAC and other
foreign-owned insurers, as well as some small to medium-sized Japanese
insurers, operate in the third sector.
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In 1996, the Japanese government will adopt a framework for long-term
deregulation of the financial services businesses in Japan. The principles
upon which deregulation of the Japanese insurance industry is based are: to
promote competition and to enhance efficiency through deregulation and
liberalization; to preserve soundness; and to secure fairness and equity in
business operations. As Japan begins gradually deregulating the insurance
industry, the marketplace should become more competitive; however, the
ultimate changes and their effects on AFLAC Japan are not presently
determinable. But, due to the Company's unique marketing distribution
system and low-cost operations in Japan, AFLAC believes it should not be
directly affected by deregulation in Japan in the immediate future.
AFLAC's strategy for future growth in Japan centers on the expansion of
the Company's product line. Although the basic plan for growth is the same
in Japan as in the United States, management has had to formulate a strategy
specifically tailored for the Japanese insurance marketplace, which is very
different from the U.S. system. There are only 31 life insurance companies
in Japan, compared with more than 2,000 life insurers in the United States.
In Japan, insurers have traditionally been restricted in the types of
policies they could offer. However, as Japan begins deregulating the
insurance industry, the marketplace should become more competitive, with
insurers able to offer more types of products as they do in the United
States.
REGULATION AND REMITTANCE OF FUNDS - JAPAN
Payments are made from AFLAC Japan to the Parent Company for management
fees, and to AFLAC U.S. for allocated expenses and remittances of earnings.
These payments totaled $179.5 million in 1995, $167.9 million in 1994 and
$133.4 million in 1993. Management fees paid to the Parent Company are
largely based on expense allocations.
A portion of AFLAC Japan annual earnings, as determined on a Japan
statutory accounting basis, can be remitted each year to AFLAC U.S. after
satisfying various conditions imposed by Japanese regulatory authorities for
protecting policyholders and obtaining remittance approvals from such
authorities. These conditions include compliance with risk-based capital
guidelines for Japanese insurers. Profit remittances to the United States
can fluctuate due to changes in the amounts of Japanese regulatory earnings.
Among other items, factors affecting regulatory earnings include Japanese
regulatory accounting practices and fluctuations in currency translations of
AFLAC Japan's U.S. dollar-denominated investments into yen. It is expected
that profit remittances will continue in future years, based on projected
annual earnings of AFLAC Japan as computed on a Japanese regulatory
accounting basis.
Japan statutory accounting practices differ in many respects from U.S.
generally accepted accounting principles. Under Japan statutory accounting
practices, policy acquisition costs are charged off immediately, policy
benefit and claim reserving methods are different, deferred income tax
liabilities are not recognized, and investment securities are generally
carried at cost.
As part of the deregulation process, the Japanese Ministry of Finance
(MOF) is developing new solvency regulations and standards that represent a
form of risk-based capital requirements. AFLAC Japan must meet these
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requirements to continue profit transfers to AFLAC U.S. At this time, AFLAC
Japan is in compliance with the proposed new standards, and management does
not expect these requirements to adversely affect the repatriation of funds
from Japan in the foreseeable future.
The insurance business in Japan, which is conducted as a branch office
of AFLAC, is subject to regulation by the MOF, similar to the regulation and
supervision in the United States as described on pages I-12 and I-13 under
"Regulation - U.S." AFLAC Japan files annual reports and financial
statements for the Japanese insurance operations based on a March 31 year-
end, prepared in accordance with Japanese regulatory accounting practices
prescribed or permitted by the MOF. Also, financial and other affairs of
AFLAC Japan are subject to examination by the MOF.
Reconciliations of AFLAC Japan net assets on a GAAP basis to net assets
determined on a Japanese regulatory accounting basis as of December 31 are
as follows:
(In thousands - unaudited) 1995 1994
---------- ----------
Net assets on GAAP basis $ 1,817,106 $ 1,564,938
Elimination of deferred policy
acquisition costs (2,067,409) (1,951,549)
Reduction in carrying value of fixed-
maturity investments for fair value
and foreign exchange adjustments (2,613,600) (978,855)
Adjustment to policy liabilities 2,205,072 500,952
Elimination of deferred income taxes 1,211,187 1,223,368
Reduction in premiums receivable (237,929) (227,270)
Other, net 98,378 97,041
---------- ---------
Net assets on Japanese regulatory
accounting basis $ 412,805 $ 228,625
========== =========
For additional information regarding AFLAC Japan's operations, see
Exhibit 13, pages 13-8 to 13-11 (AFLAC Japan section of MD&A) and pages 13-
32 and 13-50 (Notes 2 and 10 of Notes to the Consolidated Financial
Statements), which are incorporated herein by reference.
EMPLOYEES - JAPAN
AFLAC Japan employed 1,571 full-time and 157 part-time employees at
December 31, 1995. AFLAC Japan considers its employee relations to be
excellent.
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INSURANCE - U.S.
The following table sets forth AFLAC U.S. premiums earned by product
line for the last three years ended December 31.
(In thousands) 1995 1994 1993
-------- -------- --------
Premiums earned:
Cancer expense $ 402,789 $ 384,943 $ 369,256
Other accident and health 441,444 392,371 338,743
Life insurance 15,559 15,149 14,488
-------- -------- --------
Total AFLAC U.S.
premiums earned $ 859,792 $ 792,463 $ 722,487
======== ======== ========
The following table sets forth the changes in annualized premiums in
force for AFLAC U.S. health insurance for the years ended December 31.
(In thousands) 1995 1994 1993
--------- --------- ---------
Annualized premiums in force, at
beginning of year $ 860,204 $ 787,482 $ 714,533
New issues including policy
conversions 275,151 241,894 225,810
Change in unprocessed policies (1,791) 2,666 (2,458)
Lapses (207,859) (183,973) (157,123)
Other 11,399 12,135 6,720
--------- --------- ---------
Annualized premiums in force, at
end of year $ 937,104 $ 860,204 $ 787,482
========= ========= =========
HEALTH INSURANCE PLANS - U.S.
AFLAC's insurance is supplemental in nature and is designed for people
who already have major medical or primary insurance coverage. All of
AFLAC's supplemental health insurance plans are guaranteed renewable for the
lifetime of the policyholder. Guaranteed-renewable coverage may not be
cancelled by the insurer, but premium rates on existing and future policies
may be increased by class of policy in response to claims experience higher
than originally expected (subject to federal and state loss-ratio
guidelines) on a uniform, nondiscriminatory, statewide basis subject to
state regulatory approval.
AFLAC's cancer plans are designed to provide insurance benefits for
medical and nonmedical costs that are generally not reimbursed by major
medical insurance. AFLAC currently offers a series of four different cancer
plans in the United States that vary by benefit amount and type. All four
plans provide a first occurrence benefit that pays an initial amount when
internal cancer is first diagnosed, a fixed amount for each day an insured
is hospitalized for cancer treatment, and benefits for medical, radiation,
chemotherapy, surgery and a "wellness" benefit applicable toward certain
diagnostic tests such as mammograms, pap smears, flexible sigmoidoscopy,
etc. Two of the plans currently offered contain benefits that reimburse the
insured for nursing services, anesthesia, prosthesis, blood, plasma, second
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surgical opinion, ambulance, transportation, family lodging, extended care
facility, bone marrow transplant and hospice. The remaining two plans make
these benefits available as an optional schedule of benefits rider. AFLAC
also issues several riders, including one that increases the amount of the
first occurrence benefit on each rider anniversary date until the covered
person reaches age 65 or until internal cancer is diagnosed. AFLAC
periodically introduces new forms of coverage, revising benefits and related
premiums based upon the anticipated needs of the policyholders and AFLAC's
claim experience.
AFLAC offers an accident and disability policy to protect against
losses resulting from accidents. The accident portion of the policy
includes lump sum benefits for accidental death, dismemberment and specific
injuries. Fixed benefits for hospital confinement, emergency treatment,
follow-up treatments, ambulance, transportation, family lodging, wellness,
prosthesis, medical appliances and physical therapy are also provided.
Optional disability riders are available to the primary insured only and
include choices of a sickness disability rider, on-the-job disability rider
and off-the-job disability rider. These benefits are payable up to a
maximum benefit period of one year and for one disability at a time.
AFLAC currently markets five of the Medicare Supplement Standardized
Plans, with the majority of sales being for Plans F and C. The plans are
priced on an issue-age basis. Under this method, rates are revised due to
changes in the Medicare program and medical inflation. There is no
automatic rate increase due to the aging of the insured. Premium rates are
determined based on zip code groupings, which are adjusted for increases in
costs for each area. The benefits provided range from the basic plan,
covering Part A and B coinsurance, to plans with more extensive coverage,
including Part A and B deductibles, skilled nursing coinsurance, Part B
excess and other benefits. AFLAC U.S. does not market the standardized
plans covering prescription drug benefits.
AFLAC also issues other supplemental health insurance, such as
intensive care, which is a low-premium policy that provides protection
against the high cost of intensive care facilities during hospital
confinement, regardless of reimbursements from other insurers. Other types
of health insurance issued by AFLAC include a long-term convalescent care
policy, long- and short-term disability, and a hospital confinement
indemnity policy.
LIFE INSURANCE PLANS - U.S.
AFLAC issues various life insurance policies including whole life,
limited pay life, voluntary group term life and term life coverage.
AGENCY FORCE AND MARKETING - U.S.
AFLAC's sales agents are licensed to sell accident and health
insurance, and many are also licensed to sell life insurance. Most agents'
efforts are directed toward selling supplemental health insurance. The 1995
monthly average number of U.S. agents actively producing business was 6,121,
compared with 5,489 in 1994 and 5,110 in 1993.
I-10
<PAGE>
Agents' activities are principally limited to sales, with all
policyholder service functions, including issuance of policies, premium
collection, payment notices and claims handled by the staff at headquarters.
Agents are paid commissions based on first-year and renewal premiums from
their sales of health and life insurance products. AFLAC's state, regional
and district sales coordinators, who are independent contractors, are
compensated by override commissions.
AFLAC has concentrated on the development of "payroll marketing" in
marketing its policies. Payroll marketing offers policies to individuals
through common media such as trade and other associations or place of
employment. This manner of marketing is distinct from "group" insurance
sales in that each individual insured is directly contacted by the sales
associate. Policies are individually underwritten in the payroll market,
with premiums generally paid by the employee. Additionally, individuals may
retain their full insurance coverage upon separation from employment or such
affiliation, generally at the same premium. A major portion of premiums on
such sales are collected through payroll deduction or other forms of group
billings. Group-billed plans normally result in a lower average age of the
insured at the time of policy issuance and also result in certain savings in
administrative costs, a portion of which are passed on to the policyholder
in the form of reduced premiums. Management believes that payroll marketing
enables the agency force to reach a greater number of prospective
policyholders than individual solicitation and that this method lowers
distribution costs.
Another valuable marketing and sales tool is the flexible benefits
program, or cafeteria plan, which allows an employee to pay for medical
insurance using pretax dollars. These programs help achieve increased
penetration as agents are required to present the program to all employees.
They also help improve overall persistency levels due to the limited changes
allowed during the plan year.
During 1995 and 1994, AFLAC continued to develop marketing arrangements
with insurance brokers. Also, AFLAC has signed joint-marketing agreements
with several large companies within and outside of the insurance industry.
The core of the Company's distribution network will remain independent
agents. The Company has improved its access to large payroll groups through
insurance brokers and joint-marketing alliances.
In 1995, AFLAC's U.S. premiums collected were $846.4 million, 7.1% of
which was collected in Florida, 6.8% in both Georgia and Texas, 5.6% in
North Carolina and 5.1% in Tennessee. Premiums collected in all other
states were individually less than 5% of AFLAC's U.S. premiums.
COMPETITION - U.S.
The accident and health and life insurance industry in the United
States is highly competitive. AFLAC competes with a large number of other
insurers, some of which have been in business for a longer period of time or
have greater financial resources. In the United States, there are more than
2,000 life and accident and health insurance companies, most of which
compete in the states AFLAC conducts business.
Private insurers and voluntary and cooperative plans, such as Blue
Cross and Blue Shield, provide insurance for meeting basic hospitalization
I-11
<PAGE>
and medical expenses. Much of this insurance is sold on a group basis. The
federal and state governments also pay substantial costs of medical
treatment through Medicare and Medicaid programs. Such major medical
insurance generally covers a substantial amount of the medical (but not
nonmedical) expenses incurred by an insured as a result of cancer or other
major illnesses. AFLAC's policies are designed to provide coverage that is
supplemental to coverage provided by major medical insurance. AFLAC's
benefits may also be used to defray nonmedical expenses.
Since other insurers generally do not provide full coverage of medical
expenses or any coverage of nonmedical expenses, AFLAC's supplemental
insurance is not an alternative to major medical insurance, but is sold to
complement major medical insurance by covering the gap between major medical
insurance reimbursements and the total costs of an individual's health care.
AFLAC thus competes only indirectly with major medical insurers in terms of
premium rates and similar factors. However, the scope of the major medical
coverage offered by other insurers does represent a limitation on the market
for AFLAC's products. Accordingly, expansion of coverage by other insurers
or governmental programs could adversely affect AFLAC's business
opportunities. Conversely, any reduction of coverages, such as increased
deductibles and copayments, by other insurers or governmental programs could
favorably affect AFLAC's business opportunities.
AFLAC competes directly with other insurers offering supplemental
health insurance and believes that its current policies and premium rates
are generally competitive with those offered by other companies selling
similar types of insurance.
For additional information regarding U.S. insurance operations, see
Exhibit 13, page 13-12 to 13-14 (AFLAC U.S. section of MD&A), which is
incorporated herein by reference.
REGULATION - U.S.
The Parent Company and its insurance subsidiaries are subject to state
regulations in the United States as an insurance holding company system.
Such regulations generally provide that transactions between companies
within the holding company system must be fair and equitable. In addition,
transfer of assets among such affiliated companies, certain dividend
payments from insurance subsidiaries and material transactions between
companies within the system are subject to prior notice to, or approval by,
state regulatory authorities.
AFLAC and its insurance subsidiaries, in common with all U.S. insurance
companies, are subject to regulation and supervision in the states and other
jurisdictions in which they do business. In general, the insurance laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers relating to, among other things: granting and revoking
licenses to transact business, regulating trade practices, licensing agents,
prior approval of forms of policies and premium rate increases, standards of
solvency and maintenance of specified policy benefit reserves and minimum
loss ratio requirements, capital for the protection of policyholders,
limitations on dividends to shareholders, the nature of and limitations on
investments, deposits of securities for the benefit of policyholders, filing
of annual reports and financial statements prepared in accordance with
statutory insurance accounting practices prescribed or permitted by the
I-12
<PAGE>
regulatory authorities, and periodic examinations of the financial, market
conduct, and other affairs of insurance companies. In addition, the
National Association of Insurance Commissioners (NAIC) is currently working
on regulatory initiatives relating to investments, reinsurance, dividend
restrictions, revision of the risk-based capital formula, recodification of
statutory accounting principles and other related matters.
For further information concerning state regulatory and dividend
restrictions, see Exhibit 13, page 13-50 (Note 10 - Statutory Accounting and
Dividend Restrictions of Notes to the Consolidated Financial Statements),
incorporated herein by reference.
A risk-based capital formula was adopted by the NAIC in 1992 for U.S.
life insurance companies that established capital requirements relating to
insurance risk, business risk, asset risk and interest rate risk. These
requirements are intended to facilitate identification by insurance
regulators of inadequately capitalized insurance companies based upon the
types and mixtures of risks inherent in the insurer's operations. The
formulas for determining the amount of risk-based capital specify various
weighting factors that are applied to financial balances or various levels
of activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio of the company's regulatory total adjusted capital, as
defined by the NAIC, to its authorized control level risk-based capital, as
defined by the NAIC. Companies below specific trigger points or ratios are
classified within certain levels, each of which requires specified
corrective action. The levels are company action, regulatory action,
authorized control and mandatory control.
Companies that have triggered a company action level event are required
to submit a detailed comprehensive financial plan to the domiciliary state
insurance department. In the regulatory action level, in addition to
submitting the comprehensive financial plan, a company may be subjected to a
detailed regulatory investigation. The domiciliary state insurance
department is permitted, but not required, to place the insurance company
under regulatory control when it falls to the authorized control level;
regulatory control is required in the mandatory control level. AFLAC's NAIC
risk-based capital ratio continues to reflect a very strong statutory
capital and surplus position.
Currently, four states have laws, regulations or regulatory practices
that either prohibit the sale of specified disease insurance, such as
AFLAC's cancer expense insurance, or make its sale impractical. These
states are Connecticut, Massachusetts, New Jersey and New York. The
remainder of the states do not impose prohibitions or restrictions that
prevent AFLAC from marketing cancer expense insurance. AFLAC U.S. is
marketing several of its other products in these states, directly or through
a subsidiary.
Under insurance guaranty fund laws in most states in the United States,
insurance companies doing business therein can be assessed up to prescribed
limits for policyholder losses incurred by insolvent companies with similar
lines of business. Such assessments have not been material to the Company
in recent years. The Company believes that future assessments relating to
companies currently involved in insolvency proceedings will not materially
impact the consolidated financial statements.
I-13
<PAGE>
The Company continues to monitor developments concerning possible
changes to the U.S. health care system at both the federal and state levels.
The future of health care changes and its impact on AFLAC U.S. cannot be
readily predicted at this time.
EMPLOYEES - U.S.
In its U.S. insurance operations, the Company employed 1,613 full-time
and 39 part-time employees at December 31, 1995. The Company considers its
employee relations to be excellent.
OTHER OPERATIONS
At December 31, 1995, the AFLAC Broadcast Division operated seven
network-affiliated television stations with total assets of $159.6 million.
The Broadcast Division employed 554 full-time and 123 part-time employees at
December 31, 1995. The Broadcast Division considers its employee relations
to be excellent.
The Broadcast Division produced increased revenues and earnings during
1995 as compared with 1994. Revenues increased 5.1%, to $81.6 million.
Pretax earnings before interest expense rose 10.4%, to $19.0 million.
Stations benefited from advertising related to an improved U.S. economy and
strengthened cost controls.
The Broadcast Division has succeeded despite significant changes in the
industry. With the emergence of new cable networks and stations, there are
more outlets for advertising dollars than ever before. Despite the
segmentation of television entertainment and news, network-affiliated
stations continue to effectively deliver mass audiences to advertisers. As
a result, the AFLAC Broadcast Division is able to successfully compete in a
crowded, competitive marketplace.
For additional information regarding broadcast operations, see Exhibit
13, page 13-14 (Other Operations section of MD&A), which is incorporated
herein by reference.
The Company's other operations employed 332 full-time and four part-
time employees at December 31, 1995; employee relations are considered to be
excellent.
ITEM 2. PROPERTIES
AFLAC owns an 18-story office building, which is the worldwide
headquarters of the Parent Company and AFLAC, along with a six-story parking
garage. These structures are located on approximately 14 acres of land in
Columbus, Georgia. In addition, AFLAC Real Estate Holdings, Inc. (AREH), a
wholly owned subsidiary of the Parent Company, owns a two-story building
located on the same property. AFLAC also owns administrative office
buildings located nearby. AFLAC New York also occupies leased office space
in Albany, New York.
In Tokyo, Japan, AFLAC owns an 11-story administrative office building,
which was completed in April 1994. AFLAC also leases office space in Tokyo,
I-14
<PAGE>
along with regional sales offices located throughout the country, and owns a
training and computer facility in Tokyo. For further information concerning
the building in Japan, see Exhibit 13, pages 13-18, (discussion concerning
cash flow) and 13-55 (Note 12 of Notes to the Consolidated Financial
Statements), which are incorporated herein by reference. Other foreign
affiliates of the Company also occupy leased office space.
The Broadcast Division owns land, buildings, transmission towers and
other broadcast equipment in the cities where its seven television stations
are located.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various litigation considered to be in
the normal course of business. Some of this litigation is pending in
Alabama, where large punitive damages bearing little relation to the actual
damages sustained by plaintiffs have been awarded against other companies,
including insurers, in recent years. During 1995, the Company settled
certain litigation in Alabama related to an ancillary line of business.
However, the settlement was not material to the Company's consolidated net
earnings for the year. Although the final results of any litigation cannot
be predicted with certainty, the Company believes the outcome of the
litigation still pending will not have a material adverse effect on the
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders for a vote in
the fourth quarter ended December 31, 1995.
I-15
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
NAME PRINCIPAL OCCUPATION (*) AGE
- ------------------- ------------------------------------- ---
Daniel P. Amos Chief Executive Officer of the 44
Company and AFLAC, Vice Chairman
of the Company; President of the
Company since August 1991
Paul S. Amos Chairman of the Board of the Company 69
and AFLAC.
William J. Bugg, Jr. Senior Vice President, Corporate 56
Actuary of AFLAC
Monthon Chuaychoo Vice President, Financial Services, of 52
the Company and AFLAC since September
1993; Second Vice President, Assistant
Controller of the Company and AFLAC
from June 1991 to September 1993;
Second Vice President of AFLAC until
June 1991
Kriss Cloninger III Executive Vice President, Chief 48
Financial Officer and Treasurer
of the Company, and Executive
Vice President, Chief Financial
Officer of AFLAC since March 1993;
Senior Vice President, Chief
Financial Officer and Treasurer
of the Company, and Senior Vice
President, Chief Financial Officer
of AFLAC from March 1992 until March
1993; Principal, KPMG Peat Marwick LLP,
Atlanta, GA until March 1992
Martin A. Durant, III Senior Vice President, Corporate Services, 47
of the Company and AFLAC since August
1993; Vice President and Controller of
the Company until August 1993, and of
AFLAC from June 1991 to August 1993
Norman P. Foster Executive Vice President, Corporate 61
Finance, of the Company and AFLAC
since March 1992; Senior Vice
President, Chief Financial Officer
and Treasurer of the Company, and
Senior Vice President and Chief
Financial Officer of AFLAC until
March 1992
I-16
<PAGE>
David Halmrast Senior Vice President, Corporate 56
Development, of AFLAC since December
1993; Senior Vice President, Corporate
Development of the Company from April
1993 to December 1993; Senior Vice
President and Chief Financial Officer
of Colonial Companies, Inc. until July
1992
Kenneth S. Janke Jr. Senior Vice President, Investor 37
Relations, of the Company since
August 1993; Vice President, Investor
Relations, of the Company until August
1993
Akitoshi Kan Senior Vice President, AFLAC Japan, 48
Accounting, Corporate Planning, Audit,
and Legal Affairs since January 1995;
Vice President, AFLAC Japan Accounting
Department, from 1992 through 1994;
Manager, AFLAC Japan, Accounting
Department, until 1992
Kyoichi Kasuya Vice President, Chief Actuary, AFLAC 58
Japan, since 1992; General Manager,
AFLAC Japan, Actuarial Department,
until 1992
Nobuo Kawamura Senior Vice President, AFLAC Japan, 51
Underwriting, Policy Maintenance,
Premium Accounting, Customer Service,
Administration Support since January
1992; Deputy Director of Marketing,
AFLAC Japan, until 1992
Joseph P. Kuechenmeister Senior Vice President, Director 54
of Marketing of AFLAC
Joey M. Loudermilk Senior Vice President, General Counsel 42
and Corporate Secretary of the
Company, and Senior Vice President,
General Counsel and Director, Legal
and Governmental Relations and
Corporate Secretary of AFLAC since
May 1992; Senior Vice President,
Corporate Counsel and Assistant
Secretary of the Company and AFLAC
and Director, Legal and Governmental
Affairs of AFLAC until May 1992
I-17
<PAGE>
Hidefumi Matsui President, AFLAC Japan, since January 51
1995, Executive Vice President of AFLAC
Japan, from January 1992 to 1995; Senior
Vice President, Director of Marketing,
AFLAC Japan, until January 1992
Minoru Nakai President of AFLAC International, Inc., 54
since October 1991; Senior Vice
President, U.S.-Japan Operations, of
AFLAC, until October 1991
Yoshiki Otake Chairman, AFLAC Japan, since January 56
1995, Vice Chairman of AFLAC
International Inc., since October 1991,
President of AFLAC Japan from October
1991 until 1995; Executive Vice
President of AFLAC from January 1991
until October 1991
Thomas L. Paul President of AFLAC Broadcast Group, Inc.; 66
Vice President, Corporate Development,
of the Company until 1993
E. Stephen Purdom Executive Vice President of AFLAC since 48
October 1994; Senior Vice President,
Medical Director of AFLAC until October
1994, and also Medical Director,
Columbus Clinic, Columbus, GA until
September 1994
Tsuneo Shioiri Senior Vice President, Director of Sales 57
Administration, AFLAC Japan, since
January 1992; Deputy Director of
Marketing, AFLAC Japan, until 1992
Joseph W. Smith, Jr. Senior Vice President, Chief Investment 42
Officer of AFLAC since August 1991;
Senior Vice President, Investments
of AFLAC, until August 1991
Gary L. Stegman Senior Vice President, Assistant Chief 46
Financial Officer of the Company and
AFLAC since June 1991; Senior Vice
President, Treasurer of AFLAC until
June 1991
(*) Unless specifically noted, the respective executive officer has held
the occupation(s) set forth in the table for at least five years.
Each executive officer is appointed annually by the board of
directors and serves until his successor is chosen and qualified,
or until his death, resignation or removal.
I-18
<PAGE>
PART II
Pursuant to General Instruction G to Form 10-K, Items 5 through 8 are
incorporated by reference from the Company's 1995 Annual Report to
Shareholders, the appropriate sections of which are included herein as
Exhibit 13.
Exhibit 13 Annual Report
Pages Pages
__________ _____________
ITEM 5. MARKET FOR THE COMPANY'S COMMON 13-1; 13-2; 1; 24;
EQUITY AND RELATED SHAREHOLDER 13-48 46 (Note 9);
MATTERS (Note 9) and 50
ITEM 6. SELECTED FINANCIAL DATA 13-3; 13-4 32 - 33
ITEM 7. MANAGEMENT'S DISCUSSION AND 13-5 to 25 - 31
ANALYSIS OF FINANCIAL CONDITION 13-19
AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND 13-20 to 34 - 50
SUPPLEMENTARY DATA 13-58
ITEM 9. CHANGES IN AND DISAGREEMENTS None None
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
II-1
<PAGE>
PART III
Pursuant to General Instruction G to Form 10-K, Items 10 through 13 are
incorporated by reference to the Company's definitive Proxy Statement
relating to the Company's 1996 Annual Meeting of Shareholders, which was
filed with the Securities and Exchange Commission on March 1, 1996, pursuant
to Regulation 14A under the Securities Exchange Act of 1934.
Refer to the Information Refer to
Contained in the Proxy Printed
Statement under Captions Proxy
(filed electronically) Statement
Pages
________________________ _________
ITEM 10. DIRECTORS AND EXECUTIVE Security Ownership of 3 - 7
OFFICERS OF THE COMPANY Management. 1. Election
Directors of Directors
Executive Officers -
see Part I, Item 4A
herein
ITEM 11. EXECUTIVE COMPENSATION Board and Committee 8 - 18
Meetings and Directors
Compensation; Summary
Compensation Table; De-
fined Benefit Pension
Plan; Retirement Plans
for Key Executives;
Employment Contracts and
Termination of Employ-
ment Arrangements
ITEM 12. SECURITY OWNERSHIP OF Voting Securities and 2 - 7
CERTAIN BENEFICIAL Principal Holders
OWNERS AND Thereof. Security Owner-
MANAGEMENT ship of Management.
1. Election of Directors
ITEM 13. CERTAIN RELATIONSHIPS Certain Transactions 18 - 19
AND RELATED and Relationships
TRANSACTIONS
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS Page(s)
-----------
Included in Part II of this report and
incorporated by reference to the following
pages of Exhibit 13:
AFLAC Incorporated and Subsidiaries:
Consolidated Statements of Earnings, for 13-20 -
each of the years in the three-year 13-21
period ended December 31, 1995
Consolidated Balance Sheets, at December 13-22 -
31, 1995 and 1994 13-23
Consolidated Statements of Shareholders' 13-24 -
Equity, for each of the years in the 13-25
three-year period ended December 31,
1995
Consolidated Statements of Cash Flows, 13-26 -
for each of the years in the three-year 13-27
period ended December 31, 1995
Notes to the Consolidated Financial 13-28 to
Statements 13-55
Report of Independent Auditors 13-57
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Auditors' Report on Financial Statement Schedules IV-5
Schedule I - Summary of Investments - Other IV-6
Than Investments in Related
Parties, at December 31, 1995
Schedule II - Condensed Financial Information of IV-7 -
Registrant, at December 31, 1995 IV-11
and 1994 and for each of the
years in the three-year period
ended December 31, 1995
Schedule IV - Reinsurance, for each of the IV-12
years in the three-year period
ended December 31, 1995
Schedules other than those listed above are omitted because they are
not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
IV-1
<PAGE>
3. EXHIBITS
3.0 - Articles of Incorporation, as amended - incorporated by
reference from 1991 Form 10-K, Commission file number
1-7434, Exhibit 3.0; and Bylaws of the Company, as
amended - incorporated by reference from 1992 Form 10-K,
Commission file number 1-7434, Exhibit 3.0.
4.0 - The registrant is not filing one instrument evidencing
indebtedness since the total amount of securities
authorized under any single instrument does not exceed 10%
of the total assets of the registrant and its subsidiaries
on a consolidated basis. Copies of such instruments will
be furnished to the Securities and Exchange Commission
upon request.
10.0* - American Family Corporation Incentive Stock Option Plan
(1982) - incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the
AFLAC Incorporated (Formerly American Family
Corporation) Incentive Stock Option Plan (1982) and
Stock Option Plan (1985).
10.1* - American Family Corporation Stock Option Plan (1985) -
incorporated by reference from Registration Statement
No. 33-44720 on Form S-8 with respect to the AFLAC
Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1.1* - AFLAC Incorporated Amended 1985 Stock Option Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession No.
0000004977-94-000003, Exhibit A.
10.1.2* - AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.2* - American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1, 1989 -
incorporated by reference from 1993 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-94-000006,
Exhibit 10.2.
10.3* - American Family Corporation Supplemental Executive
Retirement Plan - incorporated by reference from 1989
Form 10-K, Commission file number 1-7434, Exhibit 10.9.
10.3.1* - AFLAC Incorporated Supplemental Executive Retirement
Plan, as amended, effective September 1, 1993 -
incorporated by reference from 1994 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-95-000006,
Exhibit 10.3.1.
10.4* - AFLAC Incorporated Employment Agreement with Daniel P.
Amos, dated August 1, 1993 - incorporated by reference
from 1993 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-94-000006, Exhibit 10.4.
10.5* - American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 - incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
IV-2
<PAGE>
10.6* - AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 - incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-94-000006, Exhibit 10.6.
10.7* - AFLAC Incorporated Management Incentive Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession
No. 0000004977-94-000003, Exhibit B.
10.8* - American Family Life Assurance Company of Columbus
Employment Agreement with Hidefumi Matsui, dated
January 1, 1995 - incorporated by reference from 1994
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-95-000006, Exhibit 10.8.
10.9* - American Family Life Assurance Company of Columbus
Employment Agreement with Dr. E. Stephen Purdom, dated
October 25, 1994 - incorporated by reference from 1994
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-95-000006, Exhibit 10.9.
10.10* - AFLAC Incorporated Employment Agreement with Paul S.
Amos, dated August 1, 1995 - incorporated by reference
from form 10-Q for September 30, 1995, Commission file
number 1-7434, Accession No. 0000004977-95-000023,
Exhibit 10.1.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1995.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-44720 with
respect to the AFLAC Incorporated (Formerly American
Family Corporation) Incentive Stock Option Plan (1982)
and Stock Option Plan (1985).
23.1 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-41926 with
respect to the AFLAC Associate Stock Bonus Plan.
23.2 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-41552 with
respect to the AFLAC Incorporated 401(K) Retirement
Plan.
23.3 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-64535 with respect
to the AFL Stock Plan.
27.0 - Financial Data Schedule (electronic filing only).
28.0* - AFLAC Incorporated 401(K) Retirement Plan incorporated
by reference from 1992 Form 10-K, Commission file number
1-7434, Exhibit 28.0.
*Management contract or compensatory plan or agreement.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the quarter ended
December 31, 1995.
IV-3
<PAGE>
(c) EXHIBITS FILED WITH CURRENT FORM 10-K
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1995.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-44720 with respect
to the AFLAC Incorporated (Formerly American Family
Corporation) Incentive Stock Option Plan (1982) and Stock
Option Plan (1985).
23.1 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-41926 with respect
to the AFLAC Associate Stock Bonus Plan.
23.2 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-41552 with respect
to the AFLAC Incorporated 401(K) Retirement Plan.
23.3 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-64535 with respect
to the AFL Stock Plan.
27.0 - Financial Data Schedule (electronic filing only).
IV-4
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Shareholders and Board of Directors
AFLAC Incorporated:
Under date of January 29, 1996, we reported on the consolidated balance
sheets of AFLAC Incorporated and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of earnings, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995, as contained in the 1995 annual report to shareholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year
1995. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related financial statement
schedules as listed in Item 14. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 29, 1996
IV-5
<PAGE>
SCHEDULE I
AFLAC INCORPORATED AND SUBSIDIARIES
Summary of Investments - Other than Investments in Related Parties
December 31, 1995
(In thousands) Amount in
Fair Balance
Type of Investment Cost Value Sheet
----------------------- ----------- ----------- ----------
Securities available for sale:
Fixed maturities:
Bonds:
United States Government and
government agencies and
authorities $ 497,357 $ 519,761 $ 519,761
States, municipalities and
political subdivisions 872,673 962,966 962,966
Foreign governments 6,809,934 8,201,769 8,201,769
Public utilities 3,272,635 3,735,385 3,735,385
Convertibles 29,749 33,465 33,465
All other corporate bonds 5,622,395 6,221,660 6,221,660
---------- ---------- ----------
Total fixed maturities
available for sale 17,104,743 19,675,006 19,675,006
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 3,264 3,698 3,698
Banks, trusts and insurance
companies 7,033 9,297 9,297
Industrial, miscellaneous
and all other 70,615 95,067 95,067
---------- ---------- ----------
Total equity securities 80,912 108,062 108,062
---------- ---------- ----------
Total securities
available for sale 17,185,655 19,783,068 19,783,068
Mortgage loans on real estate 22,213 28,825 22,213
Policy loans 1,230 1,230 1,230
Other long-term investments 2,113 2,113 2,113
Short-term investments 232,201 232,201 232,201
---------- ---------- ----------
Total investments $17,443,412 $20,047,437 $20,040,825
========== ========== ==========
IV-6
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
AFLAC Incorporated (Parent Only)
(In thousands)
December 31,
1995 1994
---------- ----------
Assets:
Investments:
Investments in subsidiaries* $ 2,573,606 $ 1,988,329
Other investments:
Money market funds 17,346 2,489
Mortgage loans and other 2,548 2,468
---------- ----------
Total investments 2,593,500 1,993,286
Due from subsidiaries* 3,910 9,574
Other receivables 4,478 4,851
Property and equipment, net 9,231 8,961
Other 1,291 267
---------- ----------
Total assets 2,612,410 2,016,939
========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Cash overdraft 160 82
Due to subsidiaries* 1,237 714
Notes payable (note A) 272,158 111,970
Employee and beneficiary benefit plans 147,319 117,145
Income taxes, primarily deferred 33,577 25,399
Other 23,818 9,862
Commitments and contingencies (note B)
---------- ----------
Total liabilities 478,269 265,172
---------- ----------
Shareholders' equity:
Common stock of $.10 par value:
Authorized 175,000; issued 156,358
shares in 1995 and 155,999 shares
in 1994 15,636 15,600
Additional paid-in capital 196,928 192,899
Unrealized foreign currency
translation gains 213,319 174,091
Unrealized gains on securities
available for sale 482,787 228,844
Retained earnings (note D) 1,577,605 1,277,487
Treasury stock (351,117) (135,776)
Notes receivable for stock purchases (1,017) (1,378)
---------- ----------
Total shareholders' equity 2,134,141 1,751,767
---------- ----------
Total liabilities and
shareholders' equity $ 2,612,410 $ 2,016,939
========== ==========
* Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
IV-7
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Earnings
AFLAC Incorporated (Parent Only)
(In thousands)
Years ended December 31,
1995 1994 1993
---------- ---------- ----------
Revenues:
Dividends from subsidiaries* $ 82,343 $ 109,533 $ 71,268
Management and service fees
from subsidiaries* 30,509 26,391 30,357
Other income from subsidiaries,
principally rental and interest* 196 683 992
Other income 1,069 1,327 (620)
--------- --------- ---------
Total revenues 114,117 137,934 101,997
--------- --------- ---------
Operating expenses:
Interest expense - subsidiaries* 30 22 162
Interest expense - others 8,419 6,070 3,362
Capitalized interest - (2,419) (3,250)
Other operating expenses 70,921 65,635 53,595
--------- --------- ---------
Total operating expenses 79,370 69,308 53,869
--------- --------- ---------
Earnings before income taxes,
equity in undistributed earnings
of subsidiaries and cumulative
effect of accounting changes 34,747 68,626 48,128
Income tax expense (note C) 8,583 874 1,063
--------- --------- ---------
Earnings before equity in
undistributed earnings of
subsidiaries and cumulative
effect of accounting changes 26,164 67,752 47,065
Equity in undistributed earnings
of subsidiaries 322,893 225,038 196,824
--------- --------- ---------
Earnings before cumulative
effect of accounting changes 349,057 292,790 243,889
Cumulative effect on prior years
of accounting changes (including
a $46,100 credit related to
subsidiaries) (note F) - - 11,438
--------- --------- ---------
Net earnings $ 349,057 $ 292,790 $ 255,327
========= ========= =========
* Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
IV-8
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Cash Flows
AFLAC Incorporated (Parent Only)
(In thousands)
Years ended December 31,
1995 1994 1993
---------- ---------- ----------
Cash flows from operating activities:
Net earnings $ 349,057 $ 292,790 $ 255,327
Adjustments to reconcile net
earnings to net cash provided
from operating activities:
Cumulative effect on prior
years of accounting changes - - (11,438)
Equity in undistributed
earnings of subsidiaries (322,893) (225,038) (196,824)
Deferred income taxes 8,178 (578) (300)
Employee and beneficiary
benefit plans 30,174 32,700 18,195
Other, net 17,017 4,307 190
--------- --------- ---------
Net cash provided by
operating activities 81,533 104,181 65,150
--------- --------- ---------
Cash flows from investing activities:
Net (increase) decrease in
other investments (14,325) 18,998 (14,703)
Additional capitalization
of subsidiaries - (3,592) -
Additions to property and
equipment, net - - (75)
--------- --------- ---------
Net cash (used)/provided by
investing activities (14,325) 15,406 (14,778)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from borrowings 198,250 84,000 -
Principal payments under debt
obligations (11,507) (26,541) (11,419)
Proceeds from exercise of
stock options 3,235 2,163 6,975
Dividends paid to shareholders (48,939) (44,928) (40,057)
Purchases of treasury stock (224,204) (131,734) (1,325)
Treasury stock reissued 9,693 2,761 -
Net change in amount due
to/from subsidiaries 6,186 (5,331) (3,866)
Other, net - - (1,072)
--------- --------- ---------
Net cash used by
financing activities (67,286) (119,610) (50,764)
--------- --------- ---------
Net change in cash (78) (23) (392)
Cash (overdraft) at beginning of year (82) (59) 333
--------- --------- ---------
Cash (overdraft) at end of year $ (160) $ (82) $ (59)
========= ========= =========
See the accompanying Notes to Condensed Financial Statements.
IV-9
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Notes to Condensed Financial Statements
AFLAC Incorporated (Parent Only)
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
AFLAC Incorporated and Subsidiaries (see Part II - Item 8).
(A) NOTES PAYABLE
A summary of notes payable serviced by the Parent Company at
December 31, 1995 and 1994 follows:
(In thousands) 1995 1994
-------- --------
2.71% unsecured, yen-denominated notes payable
to banks under reducing revolving credit
agreement, due annually, July 1996 through
July 2001........................................ $ 230,695 $ -
5.965% unsecured notes payable to banks,
due semiannually through 1997.................... 39,167 49,000
8.3% note payable, due monthly through 1997,
secured by equipment............................. 2,296 3,970
Unsecured notes payable to banks under revolving
credit and term-loan agreement, variable
interest rate (6.75% at December 31, 1994),
refinanced into the 2.71% notes payable in 1995.. - 50,000
6.63% short-term note payable to bank under
unsecured line of credit......................... - 9,000
-------- --------
Total notes payable $ 272,158 $ 111,970
======== ========
The aggregate maturities of the notes payable for each of the five
years after December 31, 1995, are as follows:
(In thousands)
1996............................................ 59,934
1997............................................ 58,427
1998............................................ 38,449
1999............................................ 38,449
2000............................................ 38,449
(B) CONTINGENCIES
In prior years, the Parent Company executed promissory notes to banks
and transferred the proceeds to its broadcast subsidiaries for the
acquisition of television broadcasting stations. The outstanding balances
on these notes assumed by a partnership formed by the Broadcast Group and
AFLAC were $23.8 million as of December 31, 1995, and are not included in
the accompanying condensed balance sheet.
IV-10
<PAGE>
In addition, the Parent Company has also guaranteed repayment of bank
borrowings by its subsidiary, AFLAC. The related outstanding loan balance
at December 31, 1995, was $1.0 million.
(C) INCOME TAXES
The Company and its eligible U.S. subsidiaries file a consolidated U.S.
federal income tax return. Income tax liabilities or benefits are recorded
by each principal subsidiary based upon separate return calculations, and
any difference between the consolidated provision and the aggregate amounts
recorded by the subsidiaries is reflected in the Parent Company financial
statements.
The Internal Revenue Service has proposed adjustments to the Company's
U.S. consolidated federal income tax returns for the years 1989 through
1991. The proposed adjustments relate primarily to the computation of
foreign-source income for purposes of the foreign tax credit that, if
upheld, would have a significant effect on the Company's operating results
relating to both the years under examination and subsequent years.
Management does not agree with the proposed tax issues and is vigorously
contesting them. The Company filed a formal protest with the IRS during
1995. Although the final outcome is uncertain and will likely take several
years to resolve, the Company believes that its position will prevail and
that the ultimate liability will not materially impact the consolidated
financial statements.
For further information on income taxes, see Exhibit 13, page 13-45,
Note 8 of the Notes to the Consolidated Financial Statements.
(D) DIVIDEND RESTRICTIONS
See Exhibit 13, pages 13-50 and 13-51 (Note 10, Statutory Accounting
and Dividend Restrictions, of Notes to the Consolidated Financial
Statements) for information regarding dividend restrictions.
(E) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(In thousands) 1995 1994 1993
-------- -------- --------
Cash payments during the year for:
Interest on debt obligations $ 7,807 $ 6,302 $ 3,588
Income taxes 406 400 -
In 1993, non-cash investing activities included issuance of common
stock for purchase of a company amounting to $8.7 million. For further
information see Note 9, Other, page 13-49 of Exhibit 13.
(F) ACCOUNTING CHANGES
For information concerning the cumulative effect of new accounting
standards adopted in 1995, 1994, and 1993, see page 13-30 of Exhibit 13,
Note 1, section on Accounting Changes Adopted, of Notes to the Consolidated
Financial Statements.
IV-11
<PAGE>
<TABLE>
SCHEDULE IV
AFLAC INCORPORATED AND SUBSIDIARIES
Reinsurance
Years Ended December 31, 1995, 1994 and 1993
(In thousands)
<CAPTION>
Percentage
Ceded to Assumed from of amount
Gross other other assumed
Amount companies companies Net amount to net
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Life insurance in force $ 3,461,944 $ 230,238 $ - $ 3,231,706 -
============= ============= ============= ============= ============
Premiums:
Health insurance $ 6,053,137 $ 304 $ - $ 6,052,833 -
Life insurance 18,371 374 - 17,997 -
------------- ------------- ------------- ------------- ------------
Total premiums $ 6,071,508 $ 678 $ - $ 6,070,830 -
============= ============= ============= ============= ============
Year ended December 31, 1994:
Life insurance in force $ 2,715,954 $ 101,863 $ - $ 2,614,091 -
============= ============= ============= ============= ============
Premiums:
Health insurance $ 5,165,557 $ 171 $ - $ 5,165,386 -
Life insurance 15,713 367 - 15,346 -
------------- ------------- ------------- ------------- ------------
Total premiums $ 5,181,270 $ 538 $ - $ 5,180,732 -
============= ============= ============= ============= ============
Year ended December 31, 1993:
Life insurance in force $ 2,691,221 $ 119,771 $ - $ 2,571,450 -
============= ============= ============= ============= ============
Premiums:
Health insurance $ 4,210,723 $ 392 $ - $ 4,210,331 -
Life insurance 15,497 438 - 15,059 -
------------- ------------- ------------- ------------- ------------
Total premiums $ 4,226,220 $ 830 $ - $ 4,225,390 -
============= ============= ============= ============= ============
IV-12
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AFLAC Incorporated
Date MARCH 26, 1996 By /s/ PAUL S. AMOS
------------------------ ----------------------------------
(Paul S. Amos)
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ DANIEL P. AMOS Chief Executive Officer, MARCH 26, 1996
- ------------------------ President and Vice -----------------
(Daniel P. Amos) Chairman of the Board
of Directors
/s/ KRISS CLONINGER, III Executive Vice President, MARCH 26, 1996
- ------------------------ Chief Financial Officer -----------------
(Kriss Cloninger, III) and Treasurer
/s/ NORMAN P. FOSTER Executive Vice President, MARCH 26, 1996
- ------------------------ Corporate Finance -----------------
(Norman P. Foster)
IV-13
<PAGE>
/s/ J. SHELBY AMOS, II Director MARCH 26, 1996
- ------------------------------ -----------------
(J. Shelby Amos, II)
/s/ MICHAEL H. ARMACOST Director MARCH 26, 1996
- ------------------------------ -----------------
(Michael H. Armacost)
/s/ M. DELMAR EDWARDS, M.D. Director MARCH 26, 1996
- ------------------------------ -----------------
(M. Delmar Edwards, M.D.)
/s/ GEORGE W. FORD, JR. Director MARCH 26, 1996
- ------------------------------ -----------------
(George W. Ford, Jr.)
/s/ CESAR E. GARCIA Director MARCH 26, 1996
- ------------------------------ -----------------
(Cesar E. Garcia)
/s/ JOE FRANK HARRIS Director MARCH 26, 1996
- ------------------------------ -----------------
(Joe Frank Harris)
/s/ ELIZABETH J. HUDSON Director MARCH 26, 1996
- ------------------------------ -----------------
(Elizabeth J. Hudson)
/s/ KENNETH S. JANKE, SR. Director MARCH 26, 1996
- ------------------------------ -----------------
(Kenneth S. Janke, Sr.)
IV-14
<PAGE>
/s/ CHARLES B. KNAPP Director MARCH 26, 1996
- ------------------------------ -----------------
(Charles B. Knapp)
/s/ HISAO KOBAYASHI Director MARCH 26, 1996
- ------------------------------ -----------------
(Hisao Kobayashi)
/s/ YOSHIKI OTAKE Director MARCH 26, 1996
- ------------------------------ -----------------
(Yoshiki Otake)
/s/ E. STEPHEN PURDOM Director MARCH 26, 1996
- ------------------------------ -----------------
(E. Stephen Purdom)
/s/ BARBARA K. RIMER Director MARCH 26, 1996
- ------------------------------ -----------------
(Barbara K. Rimer)
/s/ HENRY C. SCHWOB Director MARCH 26, 1996
- ------------------------------ -----------------
(Henry C. Schwob)
/s/ J. KYLE SPENCER Director MARCH 26, 1996
- ------------------------------ -----------------
(J. Kyle Spencer)
/s/ GLENN VAUGHN, JR. Director MARCH 26, 1996
- ------------------------------ -----------------
(Glenn Vaughn, Jr.)
IV-15
<PAGE>
Exhibit Index
3.0 - Articles of Incorporation, as amended - incorporated by
reference from 1991 Form 10-K, Commission file number
1-7434, Exhibit 3.0; and Bylaws of the Company, as
amended - incorporated by reference from 1992 Form 10-K,
Commission file number 1-7434, Exhibit 3.0.
4.0 - The registrant is not filing one instrument evidencing
indebtedness since the total amount of securities authorized
under any single instrument does not exceed 10% of the total
assets of the registrant and its subsidiaries on a
consolidated basis. Copies of such instruments will be
furnished to the Securities and Exchange Commission upon
request.
10.0* - American Family Corporation Incentive Stock Option Plan
(1982) - incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1* - American Family Corporation Stock Option Plan (1985) -
incorporated by reference from Registration Statement No.
33-44720 on Form S-8 with respect to the AFLAC
Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1.1* - AFLAC Incorporated Amended 1985 Stock Option Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession No.
0000004977-94-000003, Exhibit A.
10.1.2* - AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.2* - American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1, 1989 -
incorporated by reference from 1993 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-94-000006,
Exhibit 10.2.
10.3* - American Family Corporation Supplemental Executive
Retirement Plan - incorporated by reference from 1989
Form 10-K, Commission file number 1-7434, Exhibit 10.9.
10.3.1* - AFLAC Incorporated Supplemental Executive Retirement
Plan, as amended, effective September 1, 1993 - incorporated
by reference from 1994 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-95-000006, Exhibit 10.3.1.
10.4* - AFLAC Incorporated Employment Agreement with Daniel P.
Amos, dated August 1, 1993 - incorporated by reference
from 1993 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-94-000006, Exhibit 10.4.
10.5* - American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 - incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
IV-16
<PAGE>
10.6* - AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 - incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-94-000006, Exhibit 10.6.
10.7* - AFLAC Incorporated Management Incentive Plan - incorporated
by reference from 1994 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession
No. 0000004977-94-000003, Exhibit B.
10.8* - American Family Life Assurance Company of Columbus
Employment Agreement with Hidefumi Matsui, dated
January 1, 1995 - incorporated by reference from 1994
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-95-000006, Exhibit 10.8.
10.9* - American Family Life Assurance Company of Columbus
Employment Agreement with Dr. E. Stephen Purdom, dated
October 25, 1994 - incorporated by reference from 1994
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-95-000006, Exhibit 10.9.
10.10* - AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.1.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1995.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-44720 with respect
to the AFLAC Incorporated (Formerly American Family
Corporation) Incentive Stock Option Plan (1982) and Stock
Option Plan (1985).
23.1 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-41926 with respect
to the AFLAC Associate Stock Bonus Plan.
23.2 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-41552 with respect
to the AFLAC Incorporated 401(K) Retirement Plan.
23.3 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-64535 with respect
to the AFL Stock Plan.
27.0 - Financial Data Schedule (electronic filing only).
28.0* - AFLAC Incorporated 401(K) Retirement Plan incorporated
by reference from 1992 Form 10-K, Commission file number
1-7434, Exhibit 28.0.
*Management contract or compensatory plan or agreement.
IV-17
<PAGE>
Exhibits Filed with Current Form 10-K:
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 1995.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-44720 with respect
to the AFLAC Incorporated (Formerly American Family
Corporation) Incentive Stock Option Plan (1982) and Stock
Option Plan (1985).
23.1 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-41926 with respect
to the AFLAC Associate Stock Bonus Plan.
23.2 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-8 Registration Statement No. 33-41552 with respect
to the AFLAC Incorporated 401(K) Retirement Plan.
23.3 - Consent of independent auditor, KPMG Peat Marwick LLP, to
Form S-3 Registration Statement No. 33-64535 with respect
to the AFL Stock Plan.
27.0 - Financial Data Schedule (electronic filing only).
IV-18
<PAGE>
EXHIBIT 13
EXH 13
<PAGE>
EXHIBIT 13
The following information is contained in the 1995 Annual Report to
Shareholders. The required information incorporated by reference to the
preceding pages of this 1995 Form 10-K have been reproduced herein as
Exhibit 13 for purposes of electronic filing of this Form 10-K.
PART II
ITEM 5. (a) Market Information:
The Company's common stock is principally traded on the New York Stock
Exchange. The Company is also listed on the Pacific Stock Exchange and the
Tokyo Stock Exchange.
The high, low and closing quarterly sales prices for the Company's common
stock, as published in the U.S. consolidated transaction reporting system,
for the last three fiscal years ended December 31, 1995, are as follows:
Quarterly Common Stock Prices
1995 High Low Close
--------------------------------------------------------------------
4th Quarter $ 29.08 $ 27.17 $ 29.00
3rd Quarter 29.25 24.33 27.67
2nd Quarter 29.83 26.00 29.17
1st Quarter 28.50 21.25 27.33
1994
--------------------------------------------------------------------
4th Quarter $ 22.92 $ 21.33 $ 21.33
3rd Quarter 24.08 21.67 22.75
2nd Quarter 23.25 19.33 22.50
1st Quarter 21.25 16.83 20.50
1993
--------------------------------------------------------------------
4th Quarter $ 21.83 $ 16.50 $ 19.00
3rd Quarter 22.67 18.58 21.50
2nd Quarter 21.47 18.40 18.92
1st Quarter 19.67 17.60 19.20
Adjusted for three-for-two stock split payable on March 18, 1996.
EXH 13-1
<PAGE>
ITEM 5. (b) Holders:
1995 1994 1993
- ---------------------------------------------------------------------------
Number of common
shares outstanding* 141,974,309 149,454,647 155,207,126
Number of registered
common shareholders 39,317 34,628 27,866
Approximate number of
common shareholders 88,700 67,500 51,500
ITEM 5. (c) Quarterly cash dividends*:
1995 1994
------ ------
4th Quarter $.087 $.077
3rd Quarter .087 .077
2nd Quarter .087 .077
1st Quarter .077 .067
*Adjusted for three-for-two stock split, payable on March 18, 1996.
For information concerning dividend restrictions, see Management's
Discussion and Analysis of Financial Condition, the section concerning the
balance sheet, presented in this Exhibit 13 on page 13-15, and Note 10,
Statutory Accounting and Dividend Restrictions, of the Notes to the
Consolidated Financial Statements, also presented in this Exhibit 13 on page
13-50.
EXH 13-2
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except for per-share amounts):
<CAPTION>
For the Year 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums, principally supplemental health $ 6,070,830 $ 5,180,732 $ 4,225,390 $ 3,369,201 $ 2,765,349
Net investment income 1,024,960 838,825 689,272 533,166 431,315
Realized investment gains (losses) (270) (58) 2,937 (3,264) (1,451)
Other income 95,100 91,259 83,019 87,369 87,456
---------- ---------- ---------- ---------- ----------
Total revenues 7,190,620 6,110,758 5,000,618 3,986,472 3,282,669
---------- ---------- ---------- ---------- ----------
Benefits and expenses:
Benefits and claims 5,034,266 4,256,541 3,423,297 2,692,353 2,188,817
Expenses 1,555,359 1,349,881 1,148,937 969,575 829,160
---------- ---------- ---------- ---------- ----------
Total benefits and expenses 6,589,625 5,606,422 4,572,234 3,661,928 3,017,977
---------- ---------- ---------- ---------- ----------
Pretax earnings 600,995 504,336 428,384 324,544 264,692
Income taxes 251,938 211,546 184,495 141,177 116,008
---------- ---------- ---------- ---------- ----------
Net earnings $ 349,057 $ 292,790 $ 243,889(1) $ 183,367 $ 148,684
========== ========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------------------------
Per Common Share
Net earnings $ 2.33 $ 1.89 $ 1.55(1) $ 1.19 $ .97
Cash dividends .338 .298 .26 .23 .197
Shareholders' equity 15.03 11.72 8.80 7.00 6.03
Price range: High $ 29.83 $ 24.08 $ 22.67 $ 18.60 $ 16.60
Low 21.25 16.83 16.50 12.80 9.53
Close 29.00 21.33 19.00 18.40 15.93
Price/earnings ratio:* High 12.8x 12.7x 14.8x 15.6x 17.1x
Low 9.1 8.9 10.8 10.8 9.8
Common shares used for EPS 149,540 154,652 157,801 153,815 152,971
- -------------------------------------------------------------------------------------------------------------------------
EXH 13-3
<PAGE>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
At Year-End
Assets:
Investments and cash $20,044,964 $15,993,768 $12,469,140 $ 9,461,341 $ 8,056,657
Other 5,293,022 4,293,311 2,973,546 2,440,033 2,087,843
---------- ---------- ---------- ---------- ----------
Total assets $25,337,986 $20,287,079 $15,442,686 $11,901,374 $10,144,500
========== ========== ========== ========== ==========
Liabilities and shareholders' equity:
Policy liabilities $19,634,981 $16,006,607 $12,065,471 $ 9,350,241 $ 7,877,941
Notes payable 327,268 184,901 122,062 125,800 138,810
Income taxes, primarily deferred 1,397,709 1,392,441 950,278 848,514 768,515
Other liabilities 1,843,887 951,363 939,251 494,937 435,745
Shareholders' equity 2,134,141 1,751,767 1,365,624 1,081,882 923,489
---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $25,337,986 $20,287,079 $15,442,686 $11,901,374 $10,144,500
========== ========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Data
Operating earnings** $ 348,734 $ 293,053 $ 241,654(1) $ 183,426 $ 148,076
Operating earnings per share** $ 2.33 $ 1.89 $ 1.53(1) $ 1.19 $ .97
Pretax profit margin** 8.4% 8.3% 8.5% 8.2% 8.1%
After-tax profit margin** 4.8% 4.8% 4.8%(1) 4.6% 4.5%
Operating return on equity*** 22.0% 20.4% 19.9%(1) 18.4% 17.3%
Yen/dollar exchange rate at year-end 102.95 99.85 112.00 124.70 125.25
Average yen/dollar exchange rate 94.10 102.26 111.21 126.67 134.52
Notes: (1) Excludes gain of $11,438 ($.07 per share) from cumulative effect of accounting changes in 1993;
(*) Based on operating earnings per share.
(**) Excludes realized investment gains/losses, net of tax.
(***)Excludes realized investment gains/losses and unrealized gains on securities available for sale, net.
Share and per-share amounts have been adjusted to reflect the three-for-two stock split payable on March 18, 1996.
For segment and foreign information, see Management's Discussion and Analysis of Financial Condition and Results of
Operations, and Note 2 of Notes to the Consolidated Financial Statements.
EXH 13-4
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AFLAC Incorporated (the "Parent Company") and its subsidiaries (the
"Company") achieved record-setting results during each year of the three-
year period ended December 31, 1995.
The Company's primary business activity is supplemental health
insurance, which is marketed and administered primarily through American
Family Life Assurance Company of Columbus (AFLAC). Most of AFLAC's policies
are individually underwritten in the payroll market, with premiums paid by
the employee. The Company's operations in Japan (AFLAC Japan) and the
United States (AFLAC U.S.) service the two principal markets for the
Company's insurance operations. AFLAC Japan and AFLAC U.S. are the primary
components for this discussion and analysis due to their significance to the
Company's consolidated financial condition and results of operations.
On February 13, 1996, the board of directors declared a three-for-two
stock split, effectively increasing the number of shares outstanding by 50%.
All share and per-share amounts have been restated for the stock split.
EXH 13-5
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations by business
component for the years shown and the percentage changes from the previous
year.
SUMMARY OF OPERATING RESULTS BY BUSINESS COMPONENT
(In millions, except for per-share amounts)
Percentage change Years ended
over previous year December 31,
------------------ ------------------------
1995 1994 1995 1994 1993
------------------ ------------------------
Pretax operating earnings:
Insurance operations (excluding
realized investment gains and
losses):
AFLAC Japan........... 19.1% 18.2% $561.4 $471.4 $398.9
AFLAC U.S............. 15.8 20.1 104.5 90.2 75.1
----- ----- -----
Total U.S. and Japan
insurance 18.6 18.5 665.9 561.6 474.0
Realized investment
gains (losses).......... (.3) (.1) 2.9
Broadcast division........ 10.4 28.1 19.0 17.2 13.4
Interest expense,
noninsurance operations. (11.3) (9.9) (8.1)
Capitalized interest,
building construction... - 2.4 8.8
Corporate expenses, other
operations and
eliminations............ (7.9) (6.8) (72.3) (66.9) (62.6)
----- ----- -----
Earnings before income
taxes and cumulative
effect of accounting
changes.............. 19.2 17.7 601.0 504.3 428.4
Income taxes............... 19.1 14.7 251.9 211.5 184.5
----- ----- -----
Earnings before
cumulative effect of
accounting changes..... 19.2 20.1 349.1 292.8 243.9
Cumulative effect of
accounting changes....... - - 11.4
----- ----- -----
Net earnings............. $349.1 $292.8 $255.3
===== ===== =====
Net earnings per share... 23.3 21.9 $ 2.33 $ 1.89 $ 1.55*
===== ===== =====
============================================================================
*Excludes gain of $.07 per share from cumulative effect of accounting
changes in 1993.
============================================================================
Per-share amounts have been adjusted to reflect the three-for-two stock
split payable March 18, 1996.
EXH 13-6
<PAGE>
The following discussion of earnings comparisons excludes a gain of
$11.4 million, or $.07 per share, from the cumulative effect of required
accounting changes adopted in the first quarter of 1993. For additional
information on these accounting changes, see Note 1 of Notes to the
Consolidated Financial Statements.
Net earnings increased in each year of the three-year period ended
December 31, 1995. The increases reflected strong earnings in the
functional currencies of AFLAC's core insurance operations in Japan and the
United States, improved earnings by the AFLAC Broadcast Division in 1995 and
1994, a consolidated benefit from additional investment income associated
with profit repatriations from AFLAC Japan to AFLAC U.S., and reduced income
tax expense beginning in 1994 resulting from a tax rate reduction in Japan.
Partially offsetting the increases were higher corporate expenses and
increased interest expense from the Company's stock repurchase program in
1994 and 1995. However, the repurchase program benefited earnings per
share. Earnings in 1994 and 1993 benefited from capitalized interest due to
construction of the Company's administrative office building in Japan, which
was completed in early 1994.
Due to the relative size of AFLAC Japan, fluctuations in the foreign
currency markets can have a significant effect on the Company's reported
results. From 1993 through 1995, the reported results in U.S. dollars for
AFLAC Japan and the Company's consolidated earnings were aided by favorable
currency translations from yen to dollars. The continued strength of the
Japanese yen caused our yen-based earnings to be translated for reporting
purposes into a greater amount of dollars during each year of the three-year
period when compared with the results for each preceding year. As a result
of the strengthening yen, operating earnings per share (excluding realized
investment gains/losses) increased 23.3% to $2.33 in 1995, 23.5% to $1.89 in
1994 and 28.6% to $1.53 in 1993. The strengthening of the yen benefited
operating earnings by approximately $.15 per share in 1995 compared with
1994, $.12 per share in 1994 compared with 1993, and $.16 per share in 1993
compared with 1992. However, the Company sets its objective for growth in
operating earnings per share before the effect of foreign currency
fluctuations. Excluding the effect of currency fluctuations, operating
earnings per share increased 15.3%, 15.7% and 15.1% for the years ended
December 31, 1995, 1994 and 1993, respectively.
The yen began to weaken in relation to the dollar in the third quarter
of 1995 and most currency commentators expect it to remain weaker in 1996
than in 1995. A weaker yen has a negative effect on net earnings reported
in U.S. dollars. However, all of AFLAC Japan's premiums and most of its
investment income are received in yen, and its claims and expenses are paid
in yen. Also, the majority of its invested assets are denominated in yen.
Therefore, the translation of results from yen into U.S. dollars does not
affect AFLAC Japan's financial condition or its results of operations in
real economic terms.
The Company's objective for 1996 is to increase operating earnings per
share by 15%, excluding the effect of currency translation. However, if
that objective is achieved and the yen/dollar exchange rate averages 105.00
compared with the 1995 average rate of 94.10, operating earnings per share
including foreign currency translation would increase by 6% in 1996.
AFLAC Japan's pretax operating earnings (excluding realized investment
gains/losses) in yen increased 9.7%, 8.5% and 10.2% for the years ended
December 31, 1995, 1994 and 1993, respectively. The reported U.S. dollar
EXH 13-7
<PAGE>
results for AFLAC Japan were affected by the increasingly favorable
cumulative-average yen-to-dollar exchange rates of 94.10 in 1995, 102.26 in
1994 and 111.21 in 1993. As a result, percentage increases in U.S. dollars
for AFLAC Japan's pretax operating earnings were 19.1% in 1995, 18.2% in
1994 and 25.6% in 1993.
The Company's effective income tax rates were 41.9% in both 1995 and
1994, and 43.1% in 1993. Most of the Company's income tax expense
represented Japanese income taxes on AFLAC Japan's operating results, which
were taxed at Japan's corporate income tax rate of 45.3% for both 1995 and
1994, and 46.2% for 1993. Changes in the mix of contributions from the
Company's business components also impacted the effective tax rates for the
three-year period from 1993 through 1995.
During 1995, the board of directors authorized the purchase of up to an
additional 14.4 million shares of AFLAC Incorporated common stock on the
open market. In total, the board of directors has authorized the purchase
of up to 21.4 million shares since the inception of the repurchase program
in February 1994. As of December 31, 1995, 14.5 million shares had been
purchased under these repurchase authorizations. The difference in the
percentage increases of net earnings and net earnings per share primarily
reflects the impact of the share repurchase program.
The shares purchased were financed with available cash and borrowings
under revolving credit and term note agreements. Interest expense related
to the share repurchase program was $5.3 million in 1995 and $2.6 million in
1994. Consolidated interest expense, including interest expense from
insurance operations, was $15.6 million in 1995, $13.5 million in 1994 and
$10.6 million in 1993.
AFLAC Japan repatriated profits to AFLAC U.S. of $140.5 million in
1995, $132.9 million in 1994, $97.9 million in 1993 and $33.4 million in
1992. The profit transfers to AFLAC U.S. adversely impact AFLAC Japan's
investment income. However, profit repatriations benefit consolidated
operations because higher investment yields can be obtained on funds
invested in the United States. Also, income tax expense is presently lower
on investment income earned in the United States. Management estimates that
cumulative profit transfers from 1992 through 1995 have benefited
consolidated net earnings by $13.9 million in 1995, $7.4 million in 1994 and
$3.3 million in 1993.
INSURANCE OPERATIONS, AFLAC JAPAN
AFLAC Japan, a branch of AFLAC and the principal contributor to the
Company's earnings, is the fourth largest life insurance company in Japan in
terms of individual policies in force.
As discussed above, AFLAC Japan transferred profits to AFLAC U.S.,
which distorts comparisons of operating results between years. The AFLAC
Japan summary of operations table on the following page presents investment
income, total revenues and pretax operating earnings calculated on a pro
forma basis in order to improve comparability between years. The pro forma
adjustment represents cumulative investment income foregone by AFLAC Japan
on funds repatriated to AFLAC U.S. during 1992 through 1995.
EXH 13-8
<PAGE>
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
In Dollars
(In millions) 1995 1994 1993
-----------------------------------
Premium income.................... $5,195.4 $4,370.7 $3,484.0
Investment income, as adjusted*... 941.3 766.0 622.4
Other income (.5) 2.8 1.8
------- ------- -------
Total revenues, as adjusted*.... 6,136.2 5,139.5 4,108.2
------- ------- -------
Benefits and claims............... 4,486.3 3,752.8 2,957.4
Operating expenses................ 1,068.0 902.9 746.7
------- ------- -------
Total benefits and expenses 5,554.3 4,655.7 3,704.1
------- ------- -------
Pretax operating earnings, as
adjusted*..................... 581.9 483.8 404.1
Investment income applicable to
profit repatriations............ (20.5) (12.4) (5.2)
------- ------- -------
Pretax operating earnings....... $ 561.4 $ 471.4 $ 398.9
======= ======= =======
- ---------------------------------------------------------------------------
In Dollars In Yen
1995 1994 1993 1995 1994 1993
-------------------- --------------------
Percentage increases
over previous year:
Premium income....... 18.9% 25.5% 29.9% 9.4% 15.4% 14.1%
Investment income*... 22.9 23.1 31.8 13.1 13.1 15.7
Total revenues*...... 19.4 25.1 30.2 9.9 15.0 14.3
Pretax operating
earnings*.......... 20.3 19.7 26.8 10.7 10.0 11.3
Pretax operating
earnings........... 19.1 18.2 25.6 9.7 8.5 10.2
- ---------------------------------------------------------------------------
1995 1994 1993
--------------------------------
Ratios to total revenues, as adjusted*:
Benefits and claims................ 73.1% 73.0% 72.0%
Operating expenses................. 17.4 17.6 18.2
Pretax operating earnings.......... 9.5 9.4 9.8
Ratio of pretax operating earnings
to total reported revenues......... 9.2 9.2 9.7
============================================================================
* Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income of $20.5 million in 1995,
$12.4 million in 1994 and $5.2 million in 1993 foregone due to profit
repatriations.
============================================================================
EXH 13-9
<PAGE>
The percentage increases in premium income in yen reflect the growth of
premiums in force. The increases in annualized premiums in force of 7.5% in
1995, 14.5% in 1994 and 13.2% in 1993 reflect the high persistency of our
business, sales of new policies and conversions of existing policies to
policies with higher benefits and premiums. New annualized premiums from
sales and conversions were: $772.0 million in 1995, up 13.4% (4.3% in yen);
$680.9 million in 1994, up 18.2% (10.0% in yen); and $576.1 million in
1993, up 6.3% (a decline of 7.5% in yen). Sales for the past three years
have been affected by a decline in conversion activity, which has steadily
decreased since a peak in 1992. Management believes sales during the last
three years have also been affected by reduced consumer disposable income
resulting from the troubled Japanese economy.
Sales growth, excluding conversions, was positively affected in 1995 by
product broadening, particularly the introduction of living benefit life,
AFLAC Japan's newest product, in the fourth quarter of 1995. AFLAC Japan's
sales mix is changing, although cancer insurance still accounts for the
majority of total new sales and insurance in force. Cancer insurance sales
accounted for 71.2% of total new sales in yen in 1995, 81.3% in 1994 and
79.3% in 1993. Sales of a care product, which was introduced in 1992,
represented 15.6% of total new sales in 1995, 17.9% in 1994 and 19.9% in
1993. Sales of living benefit life accounted for 11.6% of total new sales
in 1995. Management believes that the contributions of cancer insurance to
new sales will decline in the future and that newer products, such as living
benefit life, will increase as AFLAC Japan proceeds with its strategy of
product broadening.
Due to the continued low level of available investment yields in Japan,
the Ministry of Finance has permitted insurers to increase premium rates on
new policy issues in recent years. AFLAC Japan increased premium rates by
an average of 16% on all cancer policy sales made after July 1, 1994.
Premium rates on care policy new issues were increased by an average of 10%
in both November 1993 and 1995. As a result of continuing low yields, the
Company expects to increase premium rates an additional 10% on all new
policy issues beginning in the second half of 1996.
Investment income, which is affected by available cash flow from
operations and investment yields achievable on new investments, continually
increased during the three-year period from 1993 to 1995, despite a decline
in available investment yields. Funds available for investment during the
three-year period 1993 through 1995 were reduced by the annual profit
repatriations discussed above and expenditures of $173.5 million in 1994 and
$94.4 million in 1993 for the construction of the administrative office
building in Tokyo. Rates of return on fixed-maturity securities in Japan
have remained low in 1995 compared with historical levels. For instance,
the yield on 10-year Japanese government bonds, as measured by a composite
index, declined from 4.72% in January 1995 to a low of 2.60% in July 1995,
closing the year at 3.07%. AFLAC Japan's new money rates for investments
made were 4.71% for 1995, 5.17% for 1994 and 5.55% for 1993. The cumulative
effect of lower investment yields is reflected in the overall rate of return
(net of investment expenses) on AFLAC Japan's average invested assets at
amortized cost. This return was 5.81% in 1995, compared with 6.00% in 1994
and 6.16% in 1993.
For AFLAC Japan, the duration of policy benefit liabilities is longer
than that of the related assets. Therefore, there is a risk that
reinvestment of the proceeds at maturity of such investments will be at a
yield below that of the interest required for the accretion of policy
EXH 13-10
<PAGE>
liabilities. At December 31, 1995, the average duration of the policy
liabilities was approximately 13 years. The average duration of the related
assets denominated in yen was approximately nine years. The weighted-
average period to maturity of fixed-maturity securities at December 31,
1995, was 11.3 years, compared with 10.7 years at December 31, 1994. Over
the next four years, $2.0 billion, or 13.1% of AFLAC Japan's fixed-maturity
securities, will mature and be reinvested.
By concentrating on selected sectors, the Company has secured higher
yields than 10-year Japanese government bonds would have provided while
adhering to conservative standards for credit quality. The Company believes
that it can maintain an overall return on invested assets with an adequate
spread over premium pricing assumptions and assumed interest rates for
policy liabilities for the near term. The premium increases implemented
during the past two years should have a positive impact on these spreads and
therefore contribute to stability in the pretax operating profit margin.
During the three-year period ended December 31, 1995, the benefit ratio
increased, and the operating expense ratio declined slightly. The increase
in the benefit ratio reflects the strengthening of policy liabilities to
provide for lower assumed interest rates and some increase in claims
experience due to fewer-than-expected policy lapses. The Company's annual
claims experience studies continue to support the current reserving
assumptions.
In 1994, the Japanese government passed a package of tax reform bills
centering on an increase in the consumption tax, which is similar to a sales
tax in the United States. The consumption tax, which was enacted in 1989,
is scheduled to increase from the current rate of 3% to 5% effective April
1, 1997. AFLAC Japan currently incurs consumption tax on agents'
commissions. Had the rate increase been enacted effective January 1, 1995,
pretax operating earnings would have been reduced by approximately $17.6
million ($9.6 million after income tax) in 1995.
During 1994, the governments of Japan and the United States held a
series of trade talks. The U.S.-Japan Framework Agreement negotiations
discussed the possibility of opening various Japanese market sectors,
including insurance, to expanded foreign competition. During the
discussions, the Japanese government agreed to avoid any radical changes in
the third sector of the insurance market until a substantial portion of the
life and non-life insurance sectors are deregulated. AFLAC and other
foreign-owned insurers, as well as some small to medium-sized Japanese
insurers, operate in the third sector.
In 1996, the Japanese government will adopt a framework for long-term
deregulation of the financial services businesses in Japan. The principles
upon which deregulation of the Japanese insurance industry is based are: to
promote competition and to enhance efficiency through deregulation and
liberalization; to preserve soundness; and to secure fairness and equity in
business operations. As Japan begins gradually deregulating the insurance
industry, the marketplace should become more competitive; however, the
ultimate changes, and their effects on AFLAC Japan, are not presently
determinable. But, due to the Company's unique marketing distribution
system and low-cost operations in Japan, AFLAC believes it should not be
directly affected by deregulation in Japan in the immediate future.
Even with Japan's economic slowdown, the Company believes the market
for supplemental insurance remains bright. Demand for the Company's
EXH 13-11
<PAGE>
products in Japan has continued, and the Company remains optimistic about
increasing penetration within existing groups, selling new products, opening
new accounts and developing additional supplemental products for the
Japanese market.
INSURANCE OPERATIONS, AFLAC U.S.
AFLAC U.S. pretax operating earnings benefited from additional
investment income earned on profit transfers received from AFLAC Japan.
AFLAC U.S. received profit transfers in the amounts of $140.5 million in
1995, $132.9 million in 1994, $97.9 million in 1993 and $33.4 million in
1992. AFLAC U.S. in turn increased dividend payments to the Parent Company
in the amounts of $21.2 million in 1995, $51.9 million in 1994 and $10.1
million in 1993. Estimated investment income earned from profits
repatriated to and retained by AFLAC U.S. from 1992 through 1995 has been
reclassified in the presentation on the following page in order to improve
comparability between years.
EXH 13-12
<PAGE>
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
(In millions) 1995 1994 1993
--------------------------------
Premium income......................... $ 859.8 $ 792.5 $ 722.5
Investment income, as adjusted*........ 78.3 68.5 62.3
Other income........................... 1.2 1.9 2.7
------ ------ ------
Total revenues, as adjusted*......... 939.3 862.9 787.5
------ ------ ------
Benefits and claims.................... 533.1 490.2 450.7
Operating expenses..................... 322.9 295.3 267.9
------ ------ ------
Total benefits and expenses.......... 856.0 785.5 718.6
------ ------ ------
Pretax operating earnings, as
adjusted*........................ 83.3 77.4 68.9
Investment income applicable to
profit repatriations................. 21.2 12.8 6.2
------ ------ ------
Pretax operating earnings.......... $ 104.5 $ 90.2 $ 75.1
====== ====== ======
- ----------------------------------------------------------------------------
Percentage increases over previous year:
Premium income....................... 8.5% 9.7% 9.5%
Investment income* ................. 14.3 10.0 10.4
Total revenues*...................... 8.9 9.6 9.6
Pretax operating earnings*........... 7.7 12.2 12.7
Pretax operating earnings............ 15.8 20.1 20.1
- ----------------------------------------------------------------------------
Ratios to total revenues, as adjusted*:
Benefits and claims.................. 56.7% 56.8% 57.2%
Operating expenses................... 34.4 34.2 34.0
Pretax operating earnings............ 8.9 9.0 8.8
Ratio of pretax operating earnings to
total reported revenues.............. 10.9 10.3 9.5
============================================================================
*Excludes estimated investment income of $21.2 million in 1995, $12.8
million in 1994 and $6.2 million in 1993 related to investment of profit
repatriation funds retained by AFLAC U.S.
============================================================================
The operating results continue to reflect slightly lower benefit
ratios. This trend is principally due to the mix of business shifting
toward accident and hospital indemnity policies, which have lower benefit
ratios compared with other products. Management expects future benefit
ratios for some of the Company's supplemental products to increase slightly
due to the Company's ongoing efforts to improve policy persistency by
enhancing policyholder benefits. In addition, potential minimum benefit
ratio requirements by insurance regulators may also result in an increase to
these ratios.
EXH 13-13
<PAGE>
At the same time, management expects the operating expense ratio,
excluding discretionary advertising expenses, to decline in the future due
to continued improvements in operating efficiencies. By improving
administrative systems and controlling other costs, management has been able
to redirect funds to national advertising programs without significantly
affecting the operating expense ratio. For more information regarding
advertising expenses, see Note 2 of the Notes to the Consolidated Financial
Statements. Operating expenses in 1995 also reflect the Company's decision
to settle certain litigation in Alabama related to an ancillary line of
business.
Management expects the pretax operating profit margin, which was 8.9%
excluding the effect of repatriation in 1995, to remain approximately the
same in 1996.
The percentage increases in premium income reflect the growth of
premiums in force. The increases in annualized premiums in force of 8.8%
in 1995, 9.1% in 1994 and 10.0% in 1993 were favorably affected by an
improvement in the persistency for several lines of business, increased
sales through Section 125 plans (commonly known as "cafeteria plans"), the
product-broadening program and expanding affiliations with insurance
brokers. Declining sales of Medicare supplement, which has higher
persistency, and increasing sales of accident insurance, which has lower
persistency, have partially offset these increases in premium in force. The
Company continues to de-emphasize the sale of Medicare supplement insurance,
its lowest margin product.
New annualized premiums from sales and conversions were: $279.1 million
in 1995, up 13.6%; $245.8 million in 1994, up 7.3%; and $229.0 million in
1993, up 11.1%. New products contributed greatly to new sales growth.
Excluding Medicare supplement sales, new annualized premium sales were up
20.8% for 1995, compared with 1994.
The Company continues to believe that there are significant
opportunities to market high-quality, affordable supplemental insurance
products in the U.S. marketplace.
OTHER OPERATIONS
The Company's other operations primarily include seven network-
affiliated television stations located in small to mid-size U.S. markets.
Broadcast revenues increased 5.1% in 1995 and 12.3% in 1994 primarily due to
increased advertising revenues from an improved U.S. economy and from the
off-year political elections in 1994. Due to the large size and growth of
the Company's insurance operations, the Broadcast Division will remain a
small part of the Company's overall operating results.
The Parent Company's operating expenses consist primarily of corporate
overhead expenses such as salary costs, retirement provisions and
professional fees. These expenses have increased during the last three
years, principally due to the growth in corporate service activities and to
increased retirement accruals in 1995 and 1994 for certain senior officers
and beneficiaries due to enhanced benefits, early retirement and certain
revisions in actuarial assumptions.
EXH 13-14
<PAGE>
FINANCIAL ACCOUNTING STANDARDS BOARD'S STATEMENTS
For information regarding Statements of Financial Accounting Standards
(SFAS) adopted during 1995 and those to be adopted in 1996, see Note 1 of
the Notes to the Consolidated Financial Statements.
ANALYSIS OF FINANCIAL CONDITION
BALANCE SHEET
The financial condition of the Company has remained strong during the
last two years. The investment portfolios of AFLAC Japan and AFLAC U.S.
have continued to grow and consist of high-quality securities.
Due to the relative size of AFLAC Japan, changes in the yen/dollar
exchange rate can have a significant effect on the Company's financial
statements. The yen/dollar exchange rate at the end of each period is used
to convert yen-denominated balance sheet items to U.S. dollars for reporting
purposes. The exchange rate at December 31, 1995, was 102.95 yen to one
U.S. dollar, 3.0% weaker than the December 31, 1994, exchange rate of 99.85.
Management estimates that the weaker yen rate decreased invested assets,
including cash, by $531.2 million, total assets by $668.3 million and total
liabilities by $652.3 million over the amounts that would have been reported
using the previous year's exchange rate. For additional information on
exchange rates, see Note 2 of the Notes to the Consolidated Financial
Statements.
Under the provisions of SFAS No. 115, which was adopted January 1,
1994, fixed-maturity securities available for sale are carried at fair
value. Previously, fixed-maturity securities were carried at amortized
cost. Net unrealized gains of $2.6 billion on investments in fixed-maturity
securities at December 31, 1995, consisted of $2.6 billion in gross
unrealized gains and $18.9 million in gross unrealized losses. At year-end
1994, net unrealized gains were $820.9 million. During 1995, net unrealized
gains increased by $1.7 billion, primarily due to the decrease in general-
market interest rates in Japan and the United States. Since December 31,
1994, AFLAC Japan's net unrealized gains have increased by $1.6 billion, and
AFLAC U.S. net unrealized gains have increased by $150.9 million. For
additional information regarding SFAS No. 115, see Note 3 of the Notes to
the Consolidated Financial Statements.
During 1995, total invested assets, including unrealized gains on
fixed-maturity securities, increased $4.1 billion, or 25.3%. During 1994,
total invested assets increased $3.5 billion, or 28.3%. In 1995, AFLAC
Japan's invested assets increased $3.6 billion (24.7%), while AFLAC U.S.
invested assets increased $416.3 million (33.1%). Since December 31, 1994,
total invested assets, excluding unrealized gains on fixed-maturity
securities, have increased $2.3 billion, or 15.2%. AFLAC Japan's
investments increased $2.0 billion (14.7%), while AFLAC U.S. investments
increased $265.4 million (20.3%). During 1995, deferred policy acquisition
costs increased 6.7%, and total assets increased 24.9%. The continued growth
in assets reflects the strength of the Company's primary business, the
substantial cash flows from operations, the record-breaking new annualized
premium sales by AFLAC U.S., the substantial renewal premiums earned in
AFLAC Japan (89% of AFLAC Japan premiums) and the effect of SFAS No. 115.
Partially offsetting these positive factors was the previously mentioned
weaker yen/dollar exchange rate.
EXH 13-15
<PAGE>
AFLAC invests primarily within the Japanese and U.S. fixed-maturity
markets. The Company uses specific criteria to judge the credit quality and
liquidity of its investments. The Company utilizes a variety of credit
rating services to monitor this criteria. The percentages of the Company's
fixed-maturity securities available for sale, at amortized cost by quality
rating, as of December 31, 1995, were as follows:
AAA 49.2%
AA 22.2
A 24.6
BBB 4.0
-----
100.0%
Private placement investments made up 23.1% and 20.3% of the Company's
total fixed-maturity securities available for sale as of December 31, 1995
and 1994, respectively. AFLAC Japan has made investments in the private
sector to secure higher yields than 10-year Japanese government bonds would
have provided. At the same time, the Company has adhered to its
conservative standards for credit quality.
Mortgage loans on real estate and other long-term investments amounted
to less than .2% of invested assets at both December 31, 1995 and 1994. Cash
and short-term investments totaled $236.3 million as of December 31, 1995,
or 1.2% of total invested assets, compared with $348.6 million, or 2.2% of
total invested assets, at December 31, 1994. For additional information
concerning investments and market values, see Notes 3 and 4 of the Notes to
the Consolidated Financial Statements.
Policy liabilities increased $3.6 billion, or 22.7%, during 1995. AFLAC
Japan policy liabilities increased $3.5 billion, or 24.0%, and AFLAC U.S.
policy liabilities increased $138.2 million, or 10.0%. These increases are
due to the addition of new business, the aging of policies in force and the
effect of SFAS No. 115 (see Note 3). The weaker yen decreased reported
policy liabilities by $560.8 million in 1995. During 1994, policy
liabilities increased $3.9 billion, or 32.7%. The stronger yen in 1994
compared with 1993 increased reported policy liabilities by $1.6 billion.
Loan agreements for the share repurchase program were amended to
provide for borrowings of up to $500 million in U.S. dollars with interest
at the London Interbank Offered Rate plus 25 basis points or in Japanese yen
with interest at the Tokyo Interbank Offered Rate plus 25 basis points.
Principal payments are payable annually over six years beginning in July
1996. In August 1995, all outstanding borrowings under the agreement were
converted from dollar-denominated to yen-denominated amounts. At December
31, 1995, bank borrowings of 23.9 billion yen ($230.7 million) were
outstanding in connection with the share repurchase program. The Company
has entered into interest rate swaps with a notional amount that
approximates the unpaid principal at December 31, 1995. These swaps
effectively change the interest rate exposure from floating-rate to a fixed-
rate of 2.71%. The Company has also designated these yen-denominated
borrowings as a hedge of its net investment in AFLAC Japan for financial
reporting purposes. The Company's ratio of debt to total capitalization
(debt plus shareholders' equity, excluding the unrealized market gains on
securities available for sale) was 16.5% and 10.8% as of December 31, 1995
and 1994, respectively.
EXH 13-16
<PAGE>
AFLAC Japan uses short-term (usually seven days) security lending
arrangements to increase investment income with minimal risk. At December
31, 1995 and 1994, the Company held Japanese government bonds as collateral
for loaned securities in the amount of $1.4 billion and $556.9 million,
respectively, at market value. The Company's security lending policy
requires that the market value of the securities received as collateral be
105% or more of the market value of the loaned securities as of the date the
securities are loaned, and not less than 100% thereafter. During 1995, the
average month-end balance of outstanding security loans was $1.1 billion.
This program increased investment income in AFLAC Japan by approximately $.9
million.
Shareholders' equity has increased $382.4 million since December 31,
1994. The increase was primarily due to net earnings of $349.1 million, an
increase in net unrealized gains on securities available for sale of $253.9
million, and an increase in unrealized foreign exchange gains of $39.2
million, less net treasury stock purchases of $215.3 million and dividends
paid of $48.9 million.
For information regarding proposed tax adjustments by the Internal
Revenue Service and pending litigation (including Alabama), see Notes 8 and
12, respectively, of the Notes to the Consolidated Financial Statements.
Under insurance guaranty fund laws in most U.S. states, insurance
companies doing business in those states can be assessed for policyholder
losses up to prescribed limits that are incurred by insolvent companies with
similar lines of business. Such assessments have not been material to the
Company in the past. The Company believes that future assessments relating
to companies currently involved in insolvency proceedings will not
materially impact the consolidated financial statements. The Japanese
government is currently implementing a funding program for the protection of
policyholders similar to the guarantee funds in the United States.
The Company's insurance operations continue to provide its primary
sources of liquidity. Capital needs can also be supplemented by borrowed
funds. The principal sources of cash from insurance operations are premiums
and investment income. Primary uses of cash in the insurance operations are
policy claims, commissions, operating expenses, income taxes and payments to
the Parent Company for management fees and dividends. Both the sources and
uses of cash are reasonably predictable. The Company's investment
objectives provide for liquidity through the ownership of high-quality
investment securities. AFLAC insurance policies are generally not interest-
sensitive and therefore are not subject to unexpected policyholder
redemptions due to investment-yield changes. Also, the majority of AFLAC
policies provide indemnity benefits rather than reimbursement for actual
medical costs and therefore are not subject to the risks of medical cost
inflation.
The achievement of continued long-term growth will require growth in
the statutory capital and surplus of the insurance subsidiaries. The
subsidiaries may secure additional statutory capital through various
sources, such as internally generated statutory earnings or equity
contributions by the Parent Company from funds generated through debt or
equity offerings. Management believes outside sources for additional debt
and equity capital, if needed, will continue to be available for capital
expenditures and business expansion.
EXH 13-17
<PAGE>
Parent Company capital resources are largely dependent upon the ability
of the subsidiaries to pay management fees and dividends. Insurance
regulatory authorities impose certain limitations and restrictions on
payments of dividends, management fees, loans and advances by AFLAC to the
Parent Company. The Georgia Insurance Statutes require prior approval for
dividend distributions that exceed the greater of statutory earnings for the
previous year or 10% of statutory capital and surplus as of the previous
year-end. In addition, the Georgia Insurance Department must approve
service arrangements and other transactions within the affiliated group.
These regulatory limitations are not expected to affect the level of
management fees or dividends paid by AFLAC to the Parent Company. A life
insurance company's statutory capital and surplus is computed according to
rules prescribed by the National Association of Insurance Commissioners
(NAIC), as modified by the insurance company's state of domicile. Statutory
accounting rules are different from generally accepted accounting principles
and are intended to emphasize policyholder protection and company solvency.
A risk-based capital formula that establishes capital requirements
relating to insurance risk, business risk, asset risk and interest rate risk
was adopted by the NAIC in 1992 for U.S. life insurance companies. These
requirements are intended to facilitate identification by insurance
regulators of inadequately capitalized insurance companies based upon the
types and mixtures of risks inherent in the insurer's operations. AFLAC's
NAIC risk-based capital ratio continues to reflect a very strong capital and
surplus position. Also, there are various ongoing regulatory initiatives by
the NAIC relating to investments, reinsurance, limited benefit insurance
policies, dividend restrictions, revisions to the risk-based capital
formula, recodification of statutory accounting principles and other related
matters.
In addition to restrictions by U.S. insurance regulators, the Japanese
Ministry of Finance (MOF) imposes restrictions on and requires approval for
the remittances of earnings from AFLAC Japan to AFLAC U.S. Payments are
made from AFLAC Japan to the Parent Company for management fees and to AFLAC
U.S. for allocated expenses and remittances of earnings. Total funds
received from AFLAC Japan were $179.5 million in 1995, $167.9 million in
1994 and $133.4 million in 1993. During the last few years, the MOF has
developed solvency standards, a version of risk-based capital requirements,
as part of its long-term regulatory revisions. For additional information
on regulatory restrictions on dividends, profit transfers and other
remittances, see Note 10 of the Notes to the Consolidated Financial
Statements.
CASH FLOW
Operating cash flows for AFLAC Japan are translated using average
monthly exchange rates for the year. The average yen/dollar exchange rate,
which is used to convert revenues, expenses and cash flows, strengthened
8.7% in 1995 compared with 1994, 8.8% in 1994 compared with 1993 and 13.9%
in 1993 compared with 1992. The average exchange rates for 1995, 1994 and
1993 were 94.10, 102.26 and 111.21, respectively.
In 1995, consolidated cash flow from operations increased 24.3% to $2.9
billion, compared with $2.4 billion in 1994 and $1.8 billion in 1993. Net
cash flow from operations for AFLAC Japan increased 28.0% to $2.7 billion in
1995, compared with $2.1 billion in 1994 and $1.7 billion in 1993. AFLAC
Japan represented 93% of the consolidated net cash flow from operations in
EXH 13-18
<PAGE>
1995 and 90% in both 1994 and 1993. The increasing cash flow from
operations was due to the continued growth of the Company's insurance
operations in Japan and the United States, and the stronger yen. Cash flow
from operations in 1995 was also favorably affected by a one-time
acceleration of remittances from premium collection agencies to AFLAC Japan
in the amount of $121.5 million. This cash flow change did not affect
earnings.
Consolidated cash flow used by investing activities (purchases less
dispositions of investment securities and additions to property and
equipment) increased 27.4% to $2.9 billion in 1995, compared with $2.2
billion in 1994 and $1.8 billion in 1993. AFLAC Japan accounted for 90% of
the consolidated net cash used by investing activities in 1995, compared
with 89% in 1994 and 88% in 1993. Included in AFLAC Japan's portion for
1994 and 1993 were expenditures of $267.9 million for the construction of an
administrative office building in Tokyo.
Operating cash flow is primarily used to purchase high-quality fixed-
maturity securities. When market opportunities arise, the Company disposes
of certain fixed-maturity securities to improve future investment yields or
lengthen maturities by reinvesting in securities of similar or higher
quality. Therefore, dispositions before maturity can vary significantly
from year to year. Dispositions before maturity represented approximately
4% of the annual average investment portfolio of fixed-maturity securities
in 1995, compared with 8% in both 1994 and 1993.
In 1995, net cash used by financing activities (principally net
purchases of treasury stock, dividends to shareholders, and debt proceeds
net of debt repayments) was $93.4 million, compared with $130.4 million in
1994 and $67.7 million in 1993. The treasury stock purchases of $224.2
million in 1995 were funded by proceeds from new borrowings in the amount of
$198.3 million and available cash. In 1994, treasury stock purchases of
$131.7 million were funded by proceeds from new borrowings of $84.0 million
and available cash. All cash dividends paid by the Parent Company were
funded by dividends received from its subsidiaries. Cash dividends paid to
shareholders amounted to $48.9 million in 1995, an increase of 8.9% over
1994. Cash dividends paid to shareholders in 1994 were $44.9 million, an
increase of 12.2% over the 1993 cash dividends of $40.1 million. The 1995
cash dividend of $.338 per share increased 13.4% over 1994. The 1994 cash
dividend of $.298 per share represented an increase of 14.6% over the 1993
cash dividend of $.26 per share. The Company has increased the cash
dividend per share at a compound rate of 13.7% over the last 10 years.
EXH 13-19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31,
(In thousands, except for per 1995 1994 1993
share amounts) ---------- ---------- ----------
Revenues:
Premiums, principally supplemental
health insurance $6,070,830 $5,180,732 $4,225,390
Net investment income 1,024,960 838,825 689,272
Realized investment gains (losses) (270) (58) 2,937
Other income 95,100 91,259 83,019
--------- --------- ---------
Total revenues 7,190,620 6,110,758 5,000,618
--------- --------- ---------
Benefits and expenses:
Benefits and claims 5,034,266 4,256,541 3,423,297
Acquisition and operating expenses:
Amortization of deferred policy
acquisition costs 168,779 153,503 127,108
Insurance commissions 802,176 689,096 561,678
Insurance expenses 424,974 361,881 340,350
Interest expense 15,611 13,496 10,554
Capitalized interest on
building construction - (2,419) (8,766)
Other operating expenses 143,819 134,324 118,013
--------- --------- ---------
Total acquisition and
operating expenses 1,555,359 1,349,881 1,148,937
--------- --------- ---------
Total benefits and expenses 6,589,625 5,606,422 4,572,234
--------- --------- ---------
Earnings before income taxes
and cumulative effect
of accounting changes 600,995 504,336 428,384
Income taxes:
Current 233,662 146,472 136,930
Deferred 18,276 65,074 47,565
--------- --------- ---------
Total income taxes 251,938 211,546 184,495
--------- --------- ---------
Earnings before
cumulative effect of
accounting changes 349,057 292,790 243,889
Cumulative effect on prior years
of accounting changes - - 11,438
--------- --------- ---------
Net earnings $ 349,057 $ 292,790 $ 255,327
========= ========= =========
(continued)
EXH 13-20
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (continued)
Years Ended December 31,
1995 1994 1993
-------- -------- --------
Earnings per share of common stock:
Earnings before cumulative
effect of accounting changes $ 2.33 $ 1.89 $ 1.55
Cumulative effect of
accounting changes - - .07
-------- -------- --------
Net earnings $ 2.33 $ 1.89 $ 1.62
======== ======== ========
Common shares used in computing
earnings per share (In thousands) 149,540 154,652 157,801
======== ======== ========
See the accompanying Notes to the Consolidated Financial Statements.
Share and per-share amounts have been adjusted to reflect the three-for-two
stock split payable March 18, 1996.
EXH 13-21
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In thousands) 1995 1994
---------- ----------
ASSETS:
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost
$17,104,743 in 1995 and
$14,709,820 in 1994) $ 19,675,006 $ 15,530,694
Equity securities (cost $80,912 in
1995 and $71,585 in 1994) 108,062 84,373
Mortgage loans on real estate 22,213 25,104
Other long-term investments 3,343 5,038
Short-term investments 232,201 330,916
----------- -----------
Total investments 20,040,825 15,976,125
Cash 4,139 17,643
Receivables, primarily premiums 321,111 303,748
Accrued investment income 256,659 220,757
Deferred policy acquisition costs 2,565,027 2,402,869
Property and equipment, at cost less
accumulated depreciation 552,061 580,247
Securities held as collateral for
loaned securities 1,378,197 556,937
Intangible assets, at cost less
accumulated amortization of $37,263
in 1995 and $35,003 in 1994 104,546 109,865
Other assets 115,421 118,888
----------- -----------
Total assets $ 25,337,986 $ 20,287,079
=========== ===========
(continued)
EXH 13-22
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
December 31,
(In thousands) 1995 1994
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities:
Future policy benefits $ 18,000,296 $ 14,586,171
Unpaid policy claims 1,016,295 929,350
Unearned premiums 301,452 339,514
Other policyholders' funds 316,938 151,572
----------- -----------
Total policy liabilities 19,634,981 16,006,607
Notes payable 327,268 184,901
Income taxes, primarily deferred 1,397,709 1,392,441
Payables for return of collateral
on loaned securities 1,378,197 556,937
Payables for security transactions 80,014 46,371
Other liabilities 385,676 348,055
Commitments and contingencies
(Notes 8, 11 and 12)
----------- -----------
Total liabilities 23,203,845 18,535,312
----------- -----------
Shareholders' equity:
Common stock of $.10 par value. Authorized
175,000; issued 156,358 shares in 1995
and 155,999 in 1994 15,636 15,600
Additional paid-in capital 196,928 192,899
Unrealized foreign currency translation
gains 213,319 174,091
Unrealized gains on securities available
for sale 482,787 228,844
Retained earnings 1,577,605 1,277,487
Treasury stock (351,117) (135,776)
Notes receivable for stock purchases (1,017) (1,378)
----------- -----------
Total shareholders' equity 2,134,141 1,751,767
----------- -----------
Total liabilities and
shareholders' equity $ 25,337,986 $ 20,287,079
=========== ===========
See the accompanying Notes to the Consolidated Financial Statements.
Share amounts have been adjusted to reflect the three-for-two stock split
payable March 18, 1996.
EXH 13-23
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31,
(In thousands) 1995 1994 1993
---------- ---------- ----------
Common stock:
Balance at beginning of year $ 15,600 $ 15,556 $ 15,478
Exercise of stock options 36 44 63
Shares issued in connection
with acquisition - - 15
---------- ---------- ----------
Balance at end of year 15,636 15,600 15,556
---------- ---------- ----------
Additional paid-in capital:
Balance at beginning of year 192,899 190,545 183,564
Exercise of stock options 3,199 2,119 3,759
Gain on treasury stock reissued 830 235 -
Shares issued in connection
with acquisition - - 3,222
---------- ---------- ----------
Balance at end of year 196,928 192,899 190,545
---------- ---------- ----------
Unrealized foreign currency
translation gains:
Balance at beginning of year 174,091 123,294 68,978
Change in unrealized translation
gains during year, net of
income taxes 39,228 50,797 54,316
---------- ---------- ----------
Balance at end of year 213,319 174,091 123,294
---------- ---------- ----------
Unrealized gains on securities
available for sale:
Balance at beginning of year 228,844 14,811 5,167
Cumulative effect of accounting
change, net of income taxes - 461,478 -
Change in unrealized gains (losses)
during year, net of income taxes 253,943 (247,445) 9,644
---------- ---------- ----------
Balance at end of year 482,787 228,844 14,811
---------- ---------- ----------
Retained earnings:
Balance at beginning of year 1,277,487 1,029,625 814,355
Net earnings 349,057 292,790 255,327
Cash dividends ($.338 per share
in 1995, $.298 in 1994 and
$.26 in 1993) (48,939) (44,928) (40,057)
---------- ---------- ----------
Balance at end of year $ 1,577,605 $ 1,277,487 $ 1,029,625
---------- ---------- ----------
(continued)
EXH 13-24
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
Years Ended December 31,
(In thousands) 1995 1994 1993
---------- ---------- ----------
Treasury stock:
Balance at beginning of year $ (135,776) $ (6,568) $ (4,171)
Purchases of treasury stock (224,204) (131,734) (7,893)
Shares issued to sales associates
stock plan 8,863 2,526 -
Shares issued in connection
with acquisition - - 5,496
---------- ---------- ----------
Balance at end of year (351,117) (135,776) (6,568)
---------- ---------- ----------
Notes receivable for stock purchases (1,017) (1,378) (1,639)
---------- ---------- ----------
Total shareholders' equity $ 2,134,141 $ 1,751,767 $ 1,365,624
========== ========== ==========
See the accompanying Notes to the Consolidated Financial Statements.
Per-share amounts have been adjusted to reflect the three-for-two stock
split payable March 18, 1996.
EXH 13-25
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In thousands) 1995 1994 1993
---------- ---------- ----------
Cash flows from operating activities:
Net earnings $ 349,057 $ 292,790 $ 255,327
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Increase in policy liabilities 2,539,406 2,236,198 1,782,689
Deferred income taxes 18,276 65,074 47,565
Change in income taxes payable 79,785 (9,666) (37,022)
Increase in deferred policy
acquisition costs (248,522) (262,696) (200,124)
Change in receivables and
advance premiums 124,882 (44,984) (38,490)
Other, net 81,214 92,530 35,304
---------- ---------- ----------
Net cash provided by
operating activities 2,944,098 2,369,246 1,845,249
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from investments sold
or matured:
Fixed-maturity securities sold 626,938 1,125,179 915,629
Fixed-maturity securities matured 506,043 353,422 129,170
Equity securities 42,247 42,208 45,131
Mortgage loans, net 2,775 35,395 24,955
Other long-term investments, net 1,695 - 2,931
Short-term investments, net 100,634 - 18,483
Costs of investments acquired:
Fixed-maturity securities (4,082,021) (3,425,922) (2,766,509)
Equity securities (44,459) (40,632) (51,237)
Other long-term investments, net - (3,312) -
Short-term investments, net - (147,849) -
Additions to property and
equipment, net (17,391) (185,395) (112,207)
---------- ---------- ----------
Net cash used by investing
activities $(2,863,539) $(2,246,906) $(1,793,654)
---------- ---------- ----------
(continued)
EXH 13-26
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31,
(In thousands) 1995 1994 1993
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings $ 198,291 $ 84,000 $ -
Principal payments under debt
obligations (31,442) (42,681) (32,197)
Dividends paid to shareholders (48,939) (44,928) (40,057)
Purchases of treasury stock (224,204) (131,734) (1,325)
Treasury stock reissued 9,693 2,761 -
Other, net 3,235 2,163 5,903
---------- ---------- ----------
Net cash used by
financing activities (93,366) (130,419) (67,676)
---------- ---------- ----------
Effect of exchange rate changes
on cash (697) 2,309 3,356
---------- ---------- ----------
Net change in cash (13,504) (5,770) (12,725)
Cash at beginning of year 17,643 23,413 36,138
---------- ---------- ----------
Cash at end of year $ 4,139 $ 17,643 $ 23,413
========== ========== ==========
Supplemental disclosures of cash
flow information:
Cash payments during the year for:
Interest on debt obligations $ 12,764 $ 13,742 $ 9,459
Income taxes 154,011 154,826 148,071
Noncash investing activities included issuance of common stock for purchase
of a company amounting to $8,730 in 1993.
Noncash financing activities included capital lease obligations incurred for
computer equipment totaling $2,517 in 1995, $18,210 in 1994, and $28,460 in
1993.
See the accompanying Notes to the Consolidated Financial Statements.
EXH 13-27
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: AFLAC Incorporated (the Parent Company) and
subsidiaries (the Company) operate predominantly in the insurance industry
and primarily sell supplemental health insurance in Japan and the United
States. Substantially all of the Company's insurance operations are
conducted through American Family Life Assurance Company of Columbus
(AFLAC), which operates in the United States (AFLAC U.S.) and as a branch in
Japan (AFLAC Japan). Most of AFLAC's insurance policies are individually
underwritten in the payroll market, with premiums paid by the employee.
AFLAC Japan accounted for 85%, 84% and 82% of the Company's total revenues
for 1995, 1994 and 1993, respectively, and 90% of total assets at December
31, 1995 and 1994.
BASIS OF PRESENTATION: The accompanying consolidated financial
statements of the Company are prepared in accordance with generally accepted
accounting principles. These principles are established primarily by the
Financial Accounting Standards Board (FASB) and the American Institute of
Certified Public Accountants. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates, based on the best information available, in recording
transactions resulting from business operations. The balance sheet amounts
that involve a greater extent of accounting estimates and actuarial
determinations subject to future changes are: deferred policy acquisition
costs, liabilities for future policy benefits and unpaid policy claims,
accrued liabilities for unfunded retirement plans for various officers and
beneficiaries, and contingent liabilities. As additional information
becomes available (or actual amounts are determinable), the recorded
estimates may be revised and reflected in operating results. All
significant intercompany items have been eliminated in consolidation.
TRANSLATION OF FOREIGN CURRENCIES: Financial statement accounts
maintained in foreign currencies, principally Japanese yen, are translated
into U.S. dollars as follows: Assets and liabilities denominated in foreign
currencies are translated at end-of-period rates of exchange. Revenues,
expenses and cash flows are translated from foreign currencies into U.S.
dollars using average monthly exchange rates for the year. The resulting
currency translation adjustments are accumulated and reported as a separate
component of shareholders' equity. Realized currency exchange gains and
losses resulting from foreign currency transactions are included in
earnings.
The Parent Company has designated its yen-denominated notes payable
(Note 7) as a hedge of its net investment in AFLAC Japan. Outstanding
principal and related accrued interest payable on the yen-denominated
borrowings are translated into dollars at end-of-period rates of exchange.
Interest expense is translated at average monthly exchange rates for the
period the borrowings are outstanding.
INSURANCE REVENUE AND EXPENSE RECOGNITION: Substantially all
supplemental health insurance policies issued by the Company are classified
as long-duration contracts. The contract provisions generally cannot be
changed or canceled during the contract period; however, premiums for
policies issued in the United States may be adjusted within prescribed
guidelines and subject to approval by state insurance regulatory
authorities.
EXH 13-28
<PAGE>
Insurance premiums for health policies are recognized as earned income
ratably over the terms of the policies. When revenues are recorded, the
related amounts of benefits and expenses are charged against such revenues,
so as to result in recognition of profits in proportion to premium revenues
over the period the policies are expected to be renewed. This association
is accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of policy acquisition costs.
The calculation of deferred policy acquisition costs and future policy
benefits requires management's use of estimates consistent with sound
actuarial valuation techniques. For new policy issues, actuarial
assumptions and deferrable acquisition costs are reviewed each year and
revised when necessary to more closely reflect recent experience and studies
of actual acquisition costs. For all policies in force, deferred policy
acquisition costs are evaluated to determine that they are recoverable from
future revenues. Costs not recoverable would be charged against earnings.
INVESTMENTS: Effective January 1, 1994, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under this standard, the Company
has classified all fixed-maturity securities as "available for sale." Such
securities are reported at fair value. In prior years, these securities
were carried at amortized cost. Equity securities are carried at fair
value.
If the fair value is higher than amortized cost for fixed-maturity
securities or purchase cost for equity securities, the excess is an
unrealized gain; and if lower than cost, the difference is an unrealized
loss. The net unrealized gains and losses on securities available for sale,
less amounts applicable to policy liabilities and deferred income taxes, are
reported in a separate component of shareholders' equity. Amortized cost of
fixed-maturity securities is based on the purchase price and is adjusted
periodically so that the carrying value will equal the face or par value at
maturity.
For investments that have experienced a decline in value below their
cost which is considered to be other than temporary, the decline is recorded
as a realized investment loss in the statement of earnings. Costs of
securities sold are determined on the first-in, first-out method. Purchases
and sales of securities are recorded on the trade dates of the transactions.
Fixed-maturity securities loaned to financial institutions in short-
term security lending transactions are not recorded as sales of securities,
but continue to be carried as investment assets during the term of the
loans. Securities received as collateral for such loans are reported
separately in assets at fair value with a corresponding liability of the
same amount for the return of such collateral at termination of the loans.
Interest is recorded as income when earned and is adjusted for
amortization of any premium or discount. Dividends on equity securities are
recorded as income on the ex-dividend dates.
DEFERRED POLICY ACQUISITION COSTS: The costs of acquiring new business
and converting existing policies are deferred and amortized, with interest,
over the premium payment periods in proportion to the ratio of annual
premium income to total anticipated premium income. Anticipated premium
income is estimated by using the same mortality and withdrawal assumptions
used in computing liabilities for future policy benefits. In this manner,
EXH 13-29
<PAGE>
the related acquisition expenses are matched with revenues. Costs deferred
include commissions and certain direct and allocated policy issue,
underwriting and marketing expenses, all of which vary with and are
primarily related to the production of new business. Policy acquisition
costs deferred were $413.5 million in 1995, $416.2 million in 1994 and
$334.5 million in 1993. Of the policy acquisition costs deferred,
commissions represented 63.8% in 1995, 66.6% in 1994 and 62.4% in 1993.
INSURANCE LIABILITIES: The liabilities for future policy benefits are
computed by a net level premium method using estimated future investment
yields, withdrawals and recognized morbidity and mortality tables modified
to reflect the Company's experience, with reasonable provision for possible
future adverse deviations in experience.
Unpaid policy claims are estimates computed on an undiscounted basis
using statistical analyses of historical claim experience adjusted for
current trends and changed conditions. The ultimate liability may vary
significantly from such estimates. These estimates are regularly adjusted
in subsequent reporting periods as new experience data emerges and are
reflected in operating results in the year such adjustments are made.
INCOME TAXES: Different rules are used in computing U.S. and foreign
income tax expense presented in the accompanying financial statements from
those used in preparing the Company's income tax returns. Deferred income
taxes are recognized using the liability method. Under the liability
method, deferred income taxes are recognized for temporary differences
between the financial reporting basis and income tax basis of assets and
liabilities, based on enacted tax laws and statutory tax rates applicable to
the periods in which the temporary differences are expected to reverse.
The Parent Company and its U.S. subsidiaries, including foreign
branches, file a consolidated U.S. income tax return. Additionally, AFLAC
Japan is subject to Japanese corporate income taxes. The Company's other
minor foreign branches and subsidiaries are also subject to income taxation
in their foreign jurisdictions.
INTANGIBLES: Television network affiliations and FCC licenses of
broadcast businesses acquired are amortized using the straight-line method
over 40 years. Unamortized intangibles are periodically reviewed to assess
recoverability using estimates of undiscounted future cash flows from the
related business.
EARNINGS PER SHARE: Earnings per share are based on the weighted
average number of common shares outstanding during the periods, including
dilutive shares issuable under the stock option plans. All share and per-
share amounts have been adjusted to reflect the three-for-two stock split
declared by the board of directors on February 13, 1996.
ACCOUNTING CHANGES ADOPTED: On January 1, 1995, the Company adopted
SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. These new accounting standards require impaired mortgage loans
to be measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral-dependent. The implementation of these standards had no material
effect on the Company.
EXH 13-30
<PAGE>
Effective January 1, 1994, the Company adopted SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities. As required, the
financial information for prior years was not restated. This accounting
change has no effect on earnings. For further information, see Note 3.
Effective January 1, 1993, the Company adopted three new accounting
standards prescribed by the FASB through a one-time cumulative increase of
$11.4 million in the statement of earnings. The financial information for
prior years was not restated. Components of the cumulative adjustment were:
an increase to net earnings of $22.0 million from the release of previously
provided deferred income taxes (SFAS No. 109, Accounting for Income Taxes),
a charge to net earnings of $9.6 million for the accrual of retirement
benefits other than pensions (SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions), and a charge of $1.0 million
for the accrual of postemployment benefits (SFAS No. 112, Employers'
Accounting for Postemployment Benefits). SFAS No. 109 changed the method of
recognizing deferred income taxes from the deferred method to the liability
method. SFAS Nos. 106 and 112 require the accrual of postretirement and
postemployment benefits during employees' active service years rather than
recognizing the costs when benefits are paid. These new accounting
standards did not have a material effect on operating earnings subsequent to
the change.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED: In March 1995, the FASB
issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. This statement, which must be
adopted by March 31, 1996, establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to (1) those assets to be held and used in the business,
and (2) for assets to be disposed of. The Company does not anticipate a
material effect on the financial statements from this new accounting
standard.
SFAS No. 123, Accounting for Stock-Based Compensation, is effective for
1996. This statement provides a choice for accounting for employee stock
compensation plans. A company can elect to use the new fair-value-based
method of accounting for employee stock compensation plans, under which
compensation cost is measured and recognized in results of operations, or
continue to account for these plans under the current accounting standards.
Entities electing to remain with the present accounting method must make
disclosures of what net income and earnings per share would have been if the
fair-value-based method of accounting had been applied. The Company plans
to continue to account for employee stock options using the present
accounting method and include the required disclosures in the financial
statements.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified
to conform to the current year presentation.
EXH 13-31
<PAGE>
(2) FOREIGN INFORMATION AND BUSINESS SEGMENT INFORMATION
The Company's only reportable industry segment is insurance. The
Company's principal foreign operations are conducted in Japan. The
components of operations for the years ended December 31 were as follows:
(In thousands) 1995 1994 1993
--------- --------- ---------
Total revenues:
Insurance:
Japan $6,115,689 $5,127,418 $4,103,294
U.S. 960,443 875,729 793,645
Realized investment
gains (losses) (270) 17 4,594
--------- --------- ---------
Total U.S. and
Japan insurance 7,075,862 6,003,164 4,901,533
Broadcast - U.S. 81,569 77,596 69,082
Corporate and
other operations 74,392 67,334 74,063
Intercompany eliminations (41,203) (37,336) (44,060)
--------- --------- ---------
Total $7,190,620 $6,110,758 $5,000,618
========= ========= =========
Earnings before income taxes and
cumulative effect of accounting changes:
Insurance:
Japan $ 561,361 $ 471,364 $ 398,946
U.S. 104,459 90,216 75,104
Realized investment
gains (losses) (270) 17 4,594
--------- --------- ---------
Total U.S. and
Japan insurance 665,550 561,597 478,644
Broadcast - U.S. 18,953 17,164 13,397
Corporate and
other operations (72,189) (64,552) (55,554)
Interest expense
(noninsurance operations) (11,319) (9,873) (8,103)
--------- --------- ---------
Total $ 600,995 $ 504,336 $ 428,384
========= ========= =========
Total assets at December 31 were as follows:
(In thousands) 1995 1994
---------- ----------
Total assets:
Insurance:
Japan $22,836,615 $18,256,082
U.S. 2,239,324 1,781,026
---------- ----------
Total U.S. and
Japan insurance 25,075,939 20,037,108
Broadcast - U.S. 159,627 152,115
Corporate and other operations 2,726,366 2,124,500
Intercompany eliminations (2,623,946) (2,026,644)
---------- ----------
Total $25,337,986 $20,287,079
========== ==========
EXH 13-32
<PAGE>
Net assets of AFLAC Japan totaled $1.8 billion at December 31, 1995,
and $1.6 billion at December 31, 1994. U.S. dollar-denominated securities
(including accrued investment income) are owned by AFLAC Japan. Such
securities amounted to $1.3 billion and $972.0 million at December 31, 1995,
and December 31, 1994, respectively. AFLAC Japan's investments in dollar-
denominated securities constitute an economic currency hedge of a portion of
the Company's investment in its foreign branch. In addition, the Parent
Company has designated its yen-denominated bank borrowings of $230.7 million
at December 31, 1995, (Note 7) as a hedge of its net investment in AFLAC
Japan. The Company's yen-denominated net assets subject to foreign currency
translation fluctuations for financial reporting purposes were $284.4
million and $601.9 million at December 31, 1995 and 1994, respectively.
Such amounts consist of AFLAC Japan's net assets less its dollar-denominated
investments and the Parent Company's yen-denominated borrowings.
The 1995 year-end yen-to-dollar exchange rate, which was used to
convert balance sheet items to U.S. dollars, weakened 3.0% compared with
1994, while the 1994 year-end exchange rate strengthened 12.2% compared with
1993, based on the yen/dollar rates of 102.95, 99.85, and 112.00 at December
31, 1995, 1994 and 1993, respectively. If the exchange rates had remained
unchanged from the prior year-end rates, the Company's total assets would
have been higher by approximately $668.3 million in 1995 and lower by
approximately $1.9 billion in 1994. Total liabilities would have been
higher by approximately $652.3 million in 1995 and lower by approximately
$1.8 billion in 1994.
The average yen/dollar exchange rate, which was used to convert
revenues, expenses and cash flows, strengthened 8.7% in 1995 compared with
1994, 8.8% in 1994 compared with 1993 and 13.9% in 1993 compared with 1992.
The average exchange rates for 1995, 1994, and 1993 were 94.10, 102.26, and
111.21, respectively. The above strengthening increased net earnings by
approximately $23.0 million in 1995, $19.7 million in 1994 and $24.5 million
in 1993.
Earnings before income taxes included net realized foreign exchange
transaction losses of $2.9 million in 1995 and $.2 million in 1994, and
gains of $.8 million in 1993.
Payments are made from AFLAC Japan to the Parent Company for management
fees and to AFLAC U.S. for allocated expenses and remittances of earnings.
These payments totaled $179.5 million in 1995, $167.9 million in 1994 and
$133.4 million in 1993. See Note 10 for information concerning restrictions
on remittances of AFLAC Japan earnings.
The Company's receivables consisted primarily of monthly insurance
premiums due from individual policyholders or their employers for payroll
deduction of premiums. At December 31, 1995, $240.5 million, or 74.9%, were
receivables for AFLAC Japan ($234.9 million at December 31, 1994).
The Company's advertising expense was $34.9 million in 1995, $23.5
million in 1994 and $20.7 million in 1993. AFLAC Japan accounted for $19.9
million, $9.4 million and $9.5 million in 1995, 1994 and 1993, respectively.
Additions to property and equipment were $23.7 million in 1995, $194.2
million in 1994 and $123.2 million in 1993. AFLAC Japan's additions were
$4.5 million in 1995, $175.5 million in 1994 and $96.8 million in 1993.
EXH 13-33
<PAGE>
(3) INVESTMENTS
The amortized cost for fixed-maturity securities, purchase cost for
equity securities and the fair values of investments in securities available
for sale at December 31 were as follows:
December 31, 1995
--------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
--------- ---------- ---------- ---------
Fixed-maturity securities:
Yen-denominated:
Japan national government
direct obligations $ 5,504.9 $ 1,239.1 $ .6 $ 6,743.4
Japan government guaranteed 492.6 51.2 .1 543.7
Japan municipalities 845.7 89.9 .4 935.2
Japan public utilities 2,882.9 408.4 .1 3,291.2
Corporate obligations:
Banks and other financial
institutions 421.4 35.6 - 457.0
Foreign issuers:
Euroyen 3,931.4 484.8 15.4 4,400.8
Samurai 243.5 28.7 - 272.2
Other 242.8 62.2 - 305.0
-------- -------- -------- --------
Total yen-denominated 14,565.2 2,399.9 16.6 16,948.5
-------- -------- -------- --------
U.S. dollar-denominated:
U.S. government direct
obligations 107.6 4.1 - 111.7
U.S. agencies (FNMA, etc.) 200.0 10.8 - 210.8
U.S. mortgage-backed
securities 189.8 7.7 .3 197.2
Sovereign and Supranational 155.4 12.9 .1 168.2
Corporate obligations:
Public utilities 150.1 8.3 .5 157.9
Asset-backed securities 114.6 7.3 .7 121.2
Other 1,604.1 137.5 .7 1,740.9
-------- -------- -------- --------
Total dollar-denominated 2,521.6 188.6 2.3 2,707.9
-------- -------- -------- --------
Other foreign securities 17.9 .7 - 18.6
-------- -------- -------- --------
Total fixed-maturity
securities available
for sale 17,104.7 2,589.2 18.9 19,675.0
Equity securities 80.9 29.3 2.1 108.1
-------- -------- -------- --------
Total securities available
for sale $17,185.6 $ 2,618.5 $ 21.0 $19,783.1
======== ======== ======== ========
EXH 13-34
<PAGE>
December 31, 1994
-----------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
--------- ---------- ---------- ---------
Fixed-maturity securities:
Yen-denominated:
Japan national government
direct obligations $ 4,790.3 $ 492.1 $ .3 $ 5,282.1
Japan government guaranteed 590.7 26.3 - 617.0
Japan municipalities 768.4 36.1 .5 804.0
Japan public utilities 2,505.2 220.9 3.5 2,722.6
Corporate obligations:
Banks and other financial
institutions 189.3 5.0 .1 194.2
Foreign issuers:
Euroyen 3,212.0 176.2 66.2 3,322.0
Samurai 304.1 14.6 1.8 316.9
Other 301.7 37.4 6.2 332.9
-------- ------- ------ --------
Total yen-denominated 12,661.7 1,008.6 78.6 13,591.7
-------- ------- ------ --------
U.S. dollar-denominated:
U.S. government direct
obligations 132.5 .3 4.5 128.3
U.S. agencies (FNMA, etc.) 83.9 .1 3.4 80.6
U.S. mortgage-backed
securities 152.2 .1 10.4 141.9
Sovereign and Supranational 134.7 1.9 5.5 131.1
Corporate obligations:
Public utilities 136.4 .2 13.1 123.5
Asset-backed securities 141.6 .4 8.3 133.7
Other 1,243.4 9.6 76.3 1,176.7
-------- ------- ------ --------
Total dollar-denominated 2,024.7 12.6 121.5 1,915.8
-------- ------- ------ --------
Other foreign securities 23.4 - .2 23.2
-------- ------- ------ --------
Total fixed-maturity
securities available
for sale 14,709.8 1,021.2 200.3 15,530.7
Equity securities 71.6 15.9 3.1 84.4
-------- ------- ------ --------
Total securities available
for sale $14,781.4 $1,037.1 $ 203.4 $15,615.1
======== ======= ====== ========
EXH 13-35
<PAGE>
The amortized cost and fair values of investments in fixed-maturity
securities available for sale at December 31, 1995, by contractual maturity
are shown below.
Cost or
Amortized Fair
(In millions) Cost Value
----------- -----------
Due in one year or less $ 530.2 $ 541.9
Due after one year through
five years 2,231.9 2,477.0
Due after five years through
10 years 4,091.0 4,675.9
Due after 10 years 10,061.8 11,783.0
U.S. mortgage-backed
securities 189.8 197.2
---------- ----------
Total fixed-maturity securities
available for sale $ 17,104.7 $ 19,675.0
========== ==========
Expected maturities will differ from contractual maturities because
some issuers have the right to call or prepay obligations with or without
call or prepayment penalties.
For AFLAC Japan, the duration of policy benefit liabilities is longer
than that of the related assets. Therefore, there is a risk that the
reinvestment of the proceeds at the maturity of such investments will be at
a yield below that of the interest required for the accretion of policy
liabilities. At December 31, 1995, the average duration of the policy
liabilities was approximately 13 years, while the average duration of the
related assets was nine years. The weighted average period to maturity of
fixed-maturity securities at December 31, 1995, was 11.3 years, compared
with 10.7 years at December 31, 1994. Over the next four years, $2.0
billion, or 13.1% of AFLAC Japan's fixed-maturity securities will mature and
be reinvested.
Fair values for fixed-maturity securities were provided by outside
securities consultants using market quotations, prices provided by market
makers or estimates of fair values obtained from yield data relating to
investment securities with similar characteristics. The fair values for
equity securities were determined using market quotations as of the end of
the year on the principal public exchange markets.
EXH 13-36
<PAGE>
Realized and unrealized gains and losses from investments for the years
ended December 31 were as follows:
(In thousands) 1995 1994 1993
---------- ---------- ----------
Realized gains (losses) on
sale or maturity of investments:
Fixed-maturity securities:
Gross gains from sales $ 7,561 $ 19,054 $ 16,447
Gross losses from sales (16,293) (24,761) (8,980)
Net gains from redemptions 924 2,416 2,369
---------- ---------- ----------
(7,808) (3,291) 9,836
Equity securities:
Gross gains from sales 9,471 5,346 1,764
Gross losses from sales (1,662) (1,587) (7,628)
Other long-term securities, net (271) (526) (1,035)
---------- ---------- ----------
Net realized gains (losses) $ (270) $ (58) $ 2,937
========== ========== ==========
Changes in unrealized gains (losses):
Fixed-maturity securities $ 1,749,389 $(1,030,290) $ 1,351,816
Equity securities 14,362 (1,585) 11,683
---------- ---------- ----------
Net unrealized gains (losses) $ 1,763,751 $(1,031,875) $ 1,363,499
========== ========== ==========
As of January 1, 1994, the Company classified all fixed-maturity
securities as available for sale under the guidelines of SFAS No. 115. Such
securities are carried at fair value in the financial statements in 1995 and
1994. As required, prior-year numbers were not restated. In years prior to
1994, all fixed-maturity securities were carried in the financial statements
at amortized cost. Equity securities are carried in the financial
statements at market value in all years. The unrealized gains and losses on
fixed-maturity securities available for sale, less amounts applicable to
policy liabilities and deferred income taxes, were reported in a separate
component of shareholders' equity, along with unrealized gains and losses on
equity securities in both 1995 and 1994. Since fixed-maturity securities
were carried at amortized cost in 1993, the unrealized gains and losses
shown above on those securities are not reflected in shareholders' equity
for 1993.
EXH 13-37
<PAGE>
The effect on shareholders' equity of adopting SFAS No. 115 was as
follows:
(In thousands) December 31, 1995 December 31, 1994 January 1, 1994
----------------- ----------------- -----------------
Increase in
invested assets $ 2,570,263 $ 820,874 $ 1,851,141
Less:
Increase in
policy liabilities 1,865,077 315,599 1,088,633
Increase in deferred
income taxes 249,109 289,089 301,030
----------- ---------- ------------
Increase in
shareholders' equity,
net unrealized gains
on securities
available for sale $ 456,077 $ 216,186 $ 461,478
=========== ========== ===========
The following fixed-maturity securities individually exceeded 10% of
shareholders' equity at December 31:
1995 1994
------------------- -------------------
Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value
------------------- -------------------
Japan National Government $5,504.9 $6,743.4 $4,790.3 $5,282.1
Tokyo Electric Power
Company, Ltd. 976.8 1,111.4 767.3 842.0
Chubu Electric Power 614.1 694.0 552.3 591.2
Tokyo Metropolitan
Government 324.9 356.2 300.9 314.6
Province De Quebec 277.7 299.4 269.2 252.6
Tohoku Electric Power 251.9 286.2 203.3 219.3
Kyushu Electric Power
Company, Ltd. 250.5 289.5 239.7 261.5
Generale Bank NV 242.8 239.5 * *
Kansai Electric Power
Company, Ltd. 224.2 259.0 232.7 253.3
Chugoku Electric Power 211.2 238.1 177.8 192.1
Goldman Sachs Group 208.9 241.3 200.3 207.6
Finance Corp. of Local
Enterprise 208.7 233.4 314.4 330.7
Republic of Austria * * 198.9 206.9
Nippon Telephone and
Telegraph Corp. * * 168.8 180.0
*Less than 10%
The Company's investments in Japanese government bonds (at amortized
cost) constituted 35.1% and 36.6% of total fixed-maturity securities
available for sale at December 31, 1995 and 1994, respectively.
EXH 13-38
<PAGE>
The components of net investment income for the years ended December 31
were as follows:
(In thousands) 1995 1994 1993
---------- --------- ---------
Fixed-maturity securities $1,030,224 $ 841,917 $ 691,482
Equity securities 1,466 1,255 1,554
Mortgage loans on real estate 1,893 3,193 6,024
Other long-term investments 130 146 369
Short-term investments 13,472 11,668 8,094
--------- -------- --------
Gross investment income 1,047,185 858,179 707,523
Less investment expenses 22,225 19,354 18,251
--------- -------- --------
Net investment income $1,024,960 $ 838,825 $ 689,272
========= ======== ========
(4) FINANCIAL INSTRUMENTS
NONDERIVATIVES
The carrying amounts for cash, receivables, accrued investment income,
accounts payable and payables for security transactions approximated their
fair values due to the short-term maturity of these instruments.
Consequently, such instruments are not included in the table presented
below.
The methods of determining the fair values of the Company's fixed-
maturity and equity securities are described in Note 3. The fair values for
mortgage loans are estimated using the quoted market prices for securities
collateralized by similar mortgage loans, adjusted for the difference in
loan characteristics. For mortgage loans where quoted market prices are not
available, the fair values are estimated using discounted cash flow analysis
and interest rates being offered for similar loans to borrowers with similar
credit ratings. Loans with similar characteristics are aggregated for
purposes of these calculations. At December 31, 1995, 74.5% of mortgage
loans were commercial and 25.5% were residential (at December 31, 1994,
72.8% and 27.2%, respectively).
The fair values for notes payable are estimated using discounted cash
flow analyses based on the Company's current borrowing rates for similar
types of borrowings.
AFLAC Japan uses short-term security lending arrangements to increase
investment income with minimal risk. At December 31, 1995 and 1994, the
Company held Japanese government bonds as collateral for loaned securities.
The Company's security lending policy requires that the fair value of the
securities received as collateral be 105% or more of the fair value of the
loaned securities as of the date the securities are loaned and not less than
100% thereafter. Bond market quotations are used to determine the fair
value and carrying value of the collateral asset and related liability.
EXH 13-39
<PAGE>
DERIVATIVES
The Company has only limited activity with derivative financial
instruments and does not use them for trading purposes nor engage in
leveraged derivative transactions. In addition, the Company does not use
derivatives to hedge the foreign-currency-denominated net assets of its
foreign insurance operations. See Note 2 for additional information on the
Company's yen-denominated net assets.
The Company has entered into interest rate swap agreements on two
floating-rate loans to reduce the impact of changes in interest rates on its
borrowing costs. These transactions effectively change a portion of the
Company's interest rate exposure from floating interest rates to fixed
interest rates. Under these swap agreements, the Company makes fixed-rate
payments and receives floating-rate payments in return to offset the
floating-rate payments required under the loan agreements.
In August 1995, the Company entered into swaps on its yen-denominated
borrowings (Note 7). The interest rate swaps have notional principal
amounts that approximate the unpaid principal amount during the six-year
loan period (23.9 billion yen or $230.7 million at December 31, 1995).
Under these agreements, the Company makes fixed-rate payments at 2.71% and
receives floating-rate payments in return (.8125% at December 31, 1995)
based on the three-month Tokyo Interbank Offered Rate.
At December 31, 1995 and 1994, the Company had an interest rate swap
with a notional principal amount equal to the principal balance of the
related loan of $39.2 million and $49.0 million, respectively. Under this
agreement, the Company makes fixed-rate payments based on a rate of 5.965%
and receives floating-rate payments in return (6.86% at December 31, 1995)
based on the three-month London Interbank Offered Rate.
The fair value of interest rate swaps is the estimated amount that the
Company would receive or pay to terminate the swap agreements at the
reporting date. The Company is exposed to nominal credit risk in the event
of non-performance by counterparts to these interest rate swap agreements.
The counterparts are credit-worthy financial institutions.
EXH 13-40
<PAGE>
The carrying values and estimated fair values of the Company's
financial instruments as of December 31 are as follows:
1995 1994
------------------------ -----------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
------------------------ -----------------------
Assets:
Fixed-maturity
securities $19,675,006 $19,675,006 $15,530,694 $15,530,694
Equity securities 108,062 108,062 84,373 84,373
Mortgage loans 22,213 28,825 25,104 29,104
Policy loans 1,230 1,230 1,202 1,202
Short-term investments 232,201 232,201 330,916 330,916
Securities held as
collateral for
loaned securities 1,378,197 1,378,197 556,937 556,937
Liabilities:
Notes payable 327,268 328,687 184,901 186,716
Derivatives - interest
rate swaps - 4,876 - (2,108)
Payables for return of
collateral on loaned
securities 1,378,197 1,378,197 556,937 556,937
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
(In thousands) 1995 1994
-------- --------
Land $138,765 $142,426
Buildings 360,949 362,439
Equipment 190,833 184,563
------- -------
690,547 689,428
Less accumulated depreciation 138,486 109,181
------- -------
Net property and equipment $552,061 $580,247
======= =======
EXH 13-41
<PAGE>
(6) POLICY LIABILITIES
The liability for future policy benefits at December 31 consisted of
the following:
(In millions) Liability Amounts Interest Rates
---------------------------- -------------------
Policy Year
Issue of In 20
Year 1995 1994 Issue Years
------ -------- -------- -------- ---------
Health insurance:
Foreign: 1995 $ 17.4 $ - 4.0% 4.0%
1994-95 429.3 94.0 4.5 4.5
1990-95 7,399.9 6,171.5 5.5 5.5
1988-93 1,132.8 1,056.0 5.25 5.25
1987-88 1,269.6 1,222.5 5.5 5.5
1985-87 211.1 218.3 5.65 5.65
1985-86 999.5 974.8 6.75 5.5
1978-84 2,795.7 2,670.7 6.5 5.0
1974-79 603.1 731.9 7.0 5.0
Other 35.9 29.7
U.S.: 1988-95 368.4 289.1 8.0 6.0
1986-95 390.9 342.2 6.0 6.0
1985-86 24.8 23.9 6.5 6.5
1981-86 267.0 268.2 7.0 5.5
Other 164.6 154.4
Life insurance 1956-95 25.2 23.4 4.0-6.75 5.5
SFAS No. 115
adjustment
(Note 3) 1,865.1 315.6
-------- --------
Total $18,000.3 $14,586.2
======== ========
The weighted-average interest rates reflected in the statements of
earnings for health insurance future policy benefits for Japan policies were
5.6% in 1995, 5.7% in 1994 and 5.8% in 1993, and for U.S. policies, 6.3% in
each of the years from 1993 through 1995.
EXH 13-42
<PAGE>
Changes in the liability for unpaid policy claims are summarized as
follows for the years ended December 31:
(In thousands) 1995 1994 1993
--------- --------- ---------
Unpaid supplemental health claims -
beginning of year $ 914,826 $ 697,712 $ 546,936
--------- --------- ---------
Add claims incurred during the year
related to:
Current year 2,399,567 1,978,901 1,576,396
Prior years (130,891) (62,940) (40,033)
--------- --------- ---------
Total incurred 2,268,676 1,915,961 1,536,363
--------- --------- ---------
Less claims paid during the year:
On claims incurred during
current year 1,496,790 1,236,131 1,003,892
On claims incurred during
prior years 630,759 532,001 427,395
--------- --------- ---------
Total paid 2,127,549 1,768,132 1,431,287
--------- --------- ---------
Effect of foreign exchange rate
changes on unpaid claims (45,171) 69,285 45,700
--------- --------- ---------
Unpaid supplemental health claims -
end of year 1,010,782 914,826 697,712
Unpaid claims for life and
other business 5,513 14,524 14,354
--------- --------- ---------
Total liability for
unpaid policy claims $1,016,295 $ 929,350 $ 712,066
========= ========= =========
EXH 13-43
<PAGE>
(7) NOTES PAYABLE
A summary of notes payable at December 31 follows:
(In thousands) 1995 1994
--------- ---------
2.71% unsecured, yen-denominated notes payable
to banks under reducing revolving credit
agreement, due annually, July 1996
through July 2001 $ 230,695 $ -
5.965% unsecured notes payable to banks, due
semiannually, through 1997 39,167 49,000
9.60% to 10.72% unsecured notes payable to
bank, due semiannually, through 1998 23,833 32,278
Obligations under capitalized leases, due
monthly through 2001, secured by computer
equipment in Japan 30,165 39,181
Unsecured notes payable to banks under
revolving credit and term loan agreement,
variable interest rate (6.75% at December
31, 1994), refinanced into the 2.71% notes
payable in 1995 - 50,000
6.63% short-term note payable to bank under
unsecured line of credit - 9,000
Other 3,408 5,442
------- -------
Total notes payable $327,268 $184,901
======= =======
The aggregate maturities of notes payable during each of the five years
after December 31, 1995, are: 1996, $78.6 million; 1997, $77.6 million;
1998, $52.5 million; 1999, $40.8 million; and 2000, $39.1 million.
The 2.71% unsecured loan agreement for the share repurchase program was
amended during 1995 to provide for borrowings up to $500 million in either
U.S. dollars or Japanese yen. In August 1995, all outstanding borrowings
under the agreement were converted from dollar-denominated to yen-
denominated loans. At December 31, 1995, bank borrowings of 23.9 billion
yen ($230.7 million) were outstanding under this agreement.
Interest rate swaps related to the 2.71% and 5.965% (fixed rates after
swaps) loans are described in Note 4.
The weighted-average interest rate on short-term notes payable
outstanding at December 31, 1994, was 6.63%. There were no short-term notes
payable outstanding at December 31, 1995.
Certain of the Company's loan agreements contain financial covenants.
The most restrictive covenant requires the Company to maintain a minimum
consolidated shareholders' equity, as defined in the agreement, of $1.0
billion. The Company was in compliance with the covenants at December 31,
1995.
EXH 13-44
<PAGE>
(8) INCOME TAXES
The income tax effects of the temporary differences that give rise to
deferred income tax assets and liabilities as of December 31 were as
follows:
(In thousands) 1995 1994
---------- ----------
Deferred income tax liabilities:
Deferred acquisition costs $ 982,239 $1,038,548
Unrealized gains on securities
available for sale 1,103,153 394,378
Premiums receivable 122,974 127,136
Other - 79,108
--------- ---------
Total deferred income
tax liabilities 2,208,366 1,639,170
--------- ---------
Deferred income tax assets:
Difference in tax basis of
investment in Japan branch 87,096 117,238
Foreign tax credit carryovers 112,202 69,507
Policy benefit reserves 729,638 91,634
Unfunded retirement benefits 53,334 45,124
Accrued expenses 62,933 59,569
Other 94,060 69,828
--------- ---------
Total gross deferred tax assets 1,139,263 452,900
Less valuation allowance 141,397 91,594
--------- ---------
Total deferred income tax assets 997,866 361,306
--------- ---------
Deferred income tax liability 1,210,500 1,277,864
Current income tax liability 187,209 114,577
--------- ---------
Total income tax liability $1,397,709 $1,392,441
========= =========
A valuation allowance is provided when it is more likely than not that
deferred tax assets will not be realized. The Company has established
valuation allowances primarily for foreign tax credit carryovers that exceed
projected future offsets and nondeductible noninsurance losses. Only 35% of
noninsurance losses can be offset against life insurance taxable income each
year. During 1995, the valuation allowance for deferred tax assets
increased by $49.8 million ($16.9 million in 1994) due to increased foreign
tax credit carryovers and noninsurance losses.
Foreign tax credit carryovers available at December 31, 1995, expire as
follows: $3.6 million in 1996, $25.4 million in 1997, $33.0 million in
1998, $16.8 million in 1999, and $33.4 million in 2000.
EXH 13-45
<PAGE>
The components of income tax expense, applicable to earnings before the
cumulative effect of accounting changes, for the years ended December 31
were as follows:
(In thousands) Japan U.S. Total
----------- --------- -----------
Income tax expense (benefit):
1995:
Current $ 213,784 $ 19,878 $ 233,662
Deferred 17,781 495 18,276
---------- -------- ----------
Total $ 231,565 $ 20,373 $ 251,938
========== ======== ==========
1994:
Current $ 133,885 $ 12,587 $ 146,472
Deferred 65,225 (151) 65,074
---------- -------- ----------
Total $ 199,110 $ 12,436 $ 211,546
========== ======== ==========
1993:
Current $ 126,439 $ 10,491 $ 136,930
Deferred 47,222 343 47,565
---------- -------- ----------
Total $ 173,661 $ 10,834 $ 184,495
========== ======== ==========
Income tax expense in the accompanying consolidated financial
statements is greater than the amount computed by applying the expected U.S.
tax rate of 35% to pretax earnings before the cumulative effect of
accounting changes. The principal reasons for the differences and the
related tax effects for the years ended December 31 are summarized as
follows:
(In thousands) 1995 1994 1993
--------- --------- ---------
Income taxes based on U.S.
statutory rates $ 210,348 $ 176,518 $ 149,934
U.S. alternative minimum tax 12,558 10,712 9,542
Unrecognized foreign tax credits 11,992 12,473 17,275
Noninsurance losses generating
no current tax benefit 7,010 5,561 1,598
Other, net 10,030 6,282 6,146
-------- -------- --------
Income tax expense $ 251,938 $ 211,546 $ 184,495
======== ======== ========
Most of the Company's income tax expense represents Japanese income
taxes on AFLAC Japan operating results. Japan's corporate tax rate was
45.3% in both 1995 and 1994 and 46.2% in 1993. During the first quarter of
1994, the Japanese government enacted new tax legislation that terminated an
extension of the temporary special corporate tax of .9% of Japan's taxable
income.
EXH 13-46
<PAGE>
Income taxes are recorded in the statements of earnings and directly in
certain shareholders' equity accounts. Income tax expense (benefit) for the
years ended December 31 was allocated as follows:
(In thousands) 1995 1994 1993
-------- -------- --------
Statements of earnings:
Operating earnings (excluding realized
investment gains and losses) $252,531 $211,341 $183,793
Realized investment gains and losses (593) 205 702
Benefits of adoption of SFAS No. 109 - - (22,000)
------- ------- -------
Income taxes included in the
statements of earnings 251,938 211,546 162,495
Shareholders' equity:
Unrealized gains and losses on
securities available for sale (39,670) 289,658 2,165
Unrealized foreign currency
translation gains (2,177) (1,980) -
------- ------- -------
Total income taxes $210,091 $499,224 $164,660
======= ======= =======
Realized investment losses incurred by AFLAC Japan are generally
deductible for Japan income tax purposes. Accordingly, the income tax
effects shown above for realized and unrealized investment gains and losses
reflect such tax benefit of any losses related to AFLAC Japan operations.
Also, AFLAC Japan receives certain Japanese income tax benefits from foreign
exchange translation losses on its dollar-denominated investments. These
tax benefits are included directly in the shareholders' equity component of
unrealized foreign currency translation gains.
Deferred income tax expense, which results from differences in the
timing of reporting various income and expense items between the financial
statements (excluding the cumulative effect of accounting changes) and the
income tax returns for the years ended December 31 is summarized as follows:
(In thousands) 1995 1994 1993
--------- --------- --------
Recognition of deferred policy
acquisition costs $ 22,753 $ 71,701 $ 52,844
Adjustments to liability for
future policy benefits (5,605) (11,417) 543
Noninsurance losses generating
no tax benefit 2,130 8,377 2,060
Other, net (1,002) (3,587) (7,882)
------- ------- -------
Deferred income tax expense $ 18,276 $ 65,074 $ 47,565
======= ======= =======
The Internal Revenue Service has proposed adjustments to the Company's
U.S. consolidated federal income tax returns for the years 1989 through
1991. The proposed adjustments relate primarily to the computation of
foreign-source income for purposes of the foreign tax credit that, if
upheld, would have a significant effect on the Company's operating results
relating to both the years under examination and subsequent years.
Management does not agree with the proposed tax issues and is vigorously
EXH 13-47
<PAGE>
contesting them. The Company filed a formal protest with the IRS during
1995. Although the final outcome is uncertain and will likely take several
years to resolve, the Company believes that its position will prevail and
that the ultimate liability will not materially impact the consolidated
financial statements.
(9) SHAREHOLDERS' EQUITY
The following is a reconciliation of the number of shares of the
Company's common stock for the years ended December 31:
(In thousands) 1995 1994 1993
-------- -------- --------
Common stock - number of shares:
Issued:
Balance at beginning of year 155,999 155,565 154,780
Exercise of stock options 359 434 629
Shares issued in connection
with acquisition - - 156
-------- -------- --------
Balance at end of year 156,358 155,999 155,565
-------- -------- --------
Treasury stock - number of shares:
Balance at beginning of year 6,544 358 259
Purchases of treasury stock 8,223 6,309 62
Shares received in connection
with acquisition - - 357
Shares issued to sales associates
stock plan (311) (123) -
Exercise of stock options (72) - -
Shares issued in connection
with acquisition - - (320)
-------- -------- --------
Balance at end of year 14,384 6,544 358
-------- -------- --------
Shares outstanding at end of year 141,974 149,455 155,207
======== ======== ========
STOCK SPLIT: On February 13, 1996, the board of directors declared a
three-for-two stock split to shareholders of record as of February 29, 1996,
payable on March 18, 1996. Share and per-share amounts have been adjusted
to reflect this split.
SHARE REPURCHASE PROGRAM: During 1995, the Company's board of directors
authorized the purchase of up to an additional 14.4 million shares, as
restated for the stock split, of the Company's common stock. In total, the
board of directors has authorized the purchase of up to 21.4 million shares
since the inception of the repurchase program in February 1994. The Company
purchased 8.2 million shares and 6.3 million shares during 1995 and 1994,
respectively, under this share repurchase program. The difference in
percentage increases in net earnings and net earnings per share primarily
reflects the impact of the share repurchase program.
EXH 13-48
<PAGE>
STOCK OPTIONS: The following table summarizes data relating to stock
options, as restated for the stock split:
1995 1994 1993
--------- --------- ---------
Number of shares subject to options:
Outstanding at
beginning of year 8,148,332 4,586,378 5,258,200
Granted 549,377 4,108,523 33,759
Expired - (938) -
Canceled (25,313) (114,001) -
Exercised (470,049) (431,630) (705,581)
---------- ---------- ----------
Outstanding at end
of year 8,202,347 8,148,332 4,586,378
========== ========== ==========
Shares exercisable at
end of year 7,676,611 6,631,818 4,143,110
========== ========== ==========
Shares available for
future grants 1,774,081 505,645 167
========== ========== ==========
The exercise price for new options granted in 1995 ranged from $24.21
to $28.21 per share (weighted-average exercise price of $28.08 per share),
from $18.83 to $23.13 per share in 1994 (weighted-average of $19.01 per
share), and from $19.20 to $20.93 per share in 1993 (weighted-average of
$19.25 per share).
The exercise price for options exercised ranged from $3.57 to $20.88
per share in 1995 and $2.05 to $16.13 in both 1994 and 1993 (weighted-
average exercise price of $11.32, $5.95 and $5.70 for 1995, 1994 and 1993,
respectively.
The exercise price of options outstanding at December 31, 1995, ranged
from $3.57 to $28.21 per share (weighted-average exercise price of $14.62
per share).
In August 1995, the board of directors made an additional 1,042,500
shares (as restated for the stock split) available for future grants. This
represents 10% of the shares previously approved for stock options by the
shareholders. The board of directors also approved 750,000 shares (as
restated for the stock split) of non-qualified stock options to be granted
to managers of AFLAC Japan.
OTHER: In accordance with the Parent Company's Articles of
Incorporation, shares of common stock are generally entitled to one vote per
share until they have been held by the same beneficial owner for a
continuous period of 48 months, at which time they become entitled to 10
votes per share.
The following share amounts have been restated to reflect the stock
split. In December 1993, the Parent Company issued 319,590 shares from
treasury stock and 155,532 newly issued shares of common stock in exchange
for the common stock of a corporation owned by the Company's president and
chief executive officer. The principal assets of the acquired corporation
consisted of 357,462 shares of the Parent Company's common stock (valued at
the stock-exchange average-closing market price over the preceding 18
EXH 13-49
<PAGE>
trading-day period) and future renewal commission rights. The commission
rights resulted from certain AFLAC insurance policies sold in the officer's
territory while he served as an independent agent for the Company on a
commission-only basis prior to 1983 (computed at fair value based on the
average of three appraisals of the present value determinations made by
three independent actuarial consultants). The 357,462 shares of Parent
Company stock acquired in 1993 have been reflected as the purchase of
treasury shares in the accompanying consolidated financial statements.
(10) STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS
Net assets of the insurance subsidiaries aggregated $2.5 billion at
December 31, 1995, on a generally accepted accounting principles basis.
AFLAC Japan accounted for $1.8 billion of these net assets.
The Company's insurance subsidiaries are required to report their
results of operations and financial position to state insurance regulatory
authorities, and in the case of AFLAC Japan, to the Japanese Ministry of
Finance, on the basis of statutory accounting practices prescribed or
permitted by such authorities.
As determined on a U.S. statutory accounting basis, net income of AFLAC
was $194.3 million in 1995, $252.5 million in 1994 and $149.2 million in
1993, and capital and surplus was $1.2 billion and $1.1 billion at December
31, 1995 and 1994, respectively.
Reconciliations of AFLAC's net assets on a generally accepted
accounting principles basis to net assets determined on a U.S. statutory
accounting basis as of December 31 are as follows:
(In thousands) 1995 1994
---------- ----------
Net assets on generally accepted
accounting principles basis $ 2,536,112 $ 1,952,326
Adjustment of fixed-maturity securities
from fair value to amortized cost (2,568,498) (821,362)
Elimination of deferred policy
acquisition costs (2,563,759) (2,401,768)
Adjustment to liability for future
policy benefits 2,892,499 1,330,687
Adjustment to income tax liability 1,236,452 1,302,172
Reduction in premiums receivable (65,107) (61,168)
Establishment of asset valuation reserve (185,180) (139,858)
Elimination of statutory non-admitted assets (63,098) (52,511)
Difference in foreign currency translation (51,423) (81,087)
Other, net 78,398 100,173
---------- ----------
Net assets on U.S. statutory
accounting basis $ 1,246,396 $ 1,127,604
========== ==========
The Parent Company depends on its subsidiaries for cash flow, primarily
in the form of dividends and management fees. Consolidated retained
earnings in the accompanying financial statements largely represent
undistributed earnings of the insurance subsidiaries. Dividends, management
fees (see Note 2) and other payments to the Parent Company by its insurance
EXH 13-50
<PAGE>
subsidiaries are subject to various regulatory restrictions and approvals
related to safeguarding the interests of insurance policyholders. The
maximum amount of dividends that can be paid by insurance companies
domiciled in the state of Georgia to shareholders without prior approval of
the Commissioner of Insurance is the greater of the net gain from operations
for the previous year determined under statutory accounting principles or
10% of statutory surplus as of the previous year-end. Dividend payments by
AFLAC during 1996 in excess of $192.9 million would require such approval.
A portion of AFLAC Japan annual earnings, as determined on a Japan
statutory accounting basis, can be remitted each year to AFLAC U.S. after
satisfying various conditions imposed by Japanese regulatory authorities for
protecting policyholders and obtaining remittance approvals from such
authorities. These conditions include compliance with risk-based capital
guidelines for Japanese insurers. Profit remittances to the United States
can fluctuate due to changes in the amounts of Japanese regulatory earnings.
Among other items, factors affecting regulatory earnings include Japanese
regulatory accounting practices and fluctuations in currency translations of
AFLAC Japan's U.S. dollar-denominated investments into yen. Earnings were
remitted from AFLAC Japan to AFLAC U.S. in the amount of $140.5 million in
1995, $132.9 million in 1994 and $97.9 million in 1993. Management expects
to continue to obtain approvals from Japan regulatory authorities for annual
profit transfers.
Net assets (unaudited) of AFLAC Japan, based on Japan statutory
accounting practices, aggregated $412.8 million and $228.6 million at
December 31, 1995 and 1994, respectively. Japan statutory accounting
practices differ in many respects from U.S. generally accepted accounting
principles. Under Japan statutory accounting practices, policy acquisition
costs are charged off immediately, policy benefit and claim reserving
methods are different, deferred income tax liabilities are not recognized,
and investment securities are generally carried at cost.
(11) BENEFIT PLANS
RETIREMENT PLANS: The Company sponsors several defined-benefit
retirement plans covering substantially all employees. The retirement
benefits for employees are generally based on years of service and formula-
determined salaries at retirement for AFLAC Japan employees, and salary
during the five highest consecutive years out of the last 10 years preceding
retirement for U.S. employees.
It is the Company's general policy to annually fund through a trust the
accrued costs for the U.S. employee plans to the extent deductible for U.S.
federal income tax purposes (such accrued costs are calculated under the
frozen entry-age actuarial cost method). A portion of the AFLAC Japan
employee retirement program is funded under a group annuity arrangement with
another insurance company. An accrued liability is included in the
consolidated financial statements for the unfunded portion of the AFLAC
Japan program and supplemental plans for certain Japan and U.S. officers.
EXH 13-51
<PAGE>
The components of retirement expense and significant actuarial
assumptions for the years ended December 31 are shown below.
1995 1994 1993
-------------- -------------- --------------
(In thousands) Japan U.S. Japan U.S. Japan U.S.
------ ------ ------ ------ ------ ------
Basic employee plans:
Service cost for
benefits earned
during the year $2,610 $ 1,880 $2,269 $ 2,166 $1,500 $ 1,602
Interest cost on
projected benefit
obligations 1,148 2,686 999 2,569 801 2,145
Less actual investment
return on plan assets (518) (6,344) (1,135) 28 (355) (1,195)
Net amortization
and deferral 696 4,370 278 (1,530) 213 (487)
----- ------ ----- ------ ----- ------
Total retirement
expense for basic
employee plans 3,936 2,592 2,411 3,233 2,159 2,065
Officers, retirees and
beneficiaries unfunded
supplemental plans 1,395 33,134 1,203 33,468 1,021 18,007
----- ------ ----- ------ ----- ------
Total retirement
expense $5,331 $35,726 $3,614 $36,701 $3,180 $20,072
===== ====== ===== ====== ===== ======
Significant actuarial
assumptions:
Discount rate for:
Net periodic pension
costs 4.0% 8.0% 4.4% 7.0% 5.5% 8.0%
Benefit obligations 4.0 7.0 4.0 8.0 4.0 7.0
Projected increase in
salary levels 3.5 5.0 4.5 5.0 4.5 5.0
Expected long-term
return on plan assets 4.5 9.0 5.5 9.0 5.5 9.0
EXH 13-52
<PAGE>
Reconciliations of the funded status of the basic employee plans with
amounts recognized in the accompanying consolidated balance sheets as of
December 31 are as follows:
1995 1994
---------------- ----------------
(In thousands) Japan U.S. Japan U.S.
------- ------- ------- -------
Plan assets, at fair value
(primarily bonds, stocks
and insurance contracts) $18,769 $31,557 $16,631 $24,963
------ ------ ------ ------
Actuarial present value of
benefit obligations:
Accumulated benefit obligations,
based on employee service to
date and present salary levels:
Vested benefits 16,677 27,725 11,694 22,413
Non-vested benefits 128 1,385 135 1,120
Effect of assumed future
salary increases 10,187 13,414 10,344 9,108
------ ------ ------ ------
Projected benefit obligations 26,992 42,524 22,173 32,641
------ ------ ------ ------
Projected benefit obligations
in excess of plan assets (8,223) (10,967) (5,542) (7,678)
Unamortized net losses from plan
experience variations and changes
in actuarial assumptions 1,029 11,486 589 9,661
Unrecognized prior service
cost (credit) 1,347 (249) - (276)
Unamortized net transition
(gain) loss 857 (1,205) 983 (1,326)
------ ------ ------ ------
Prepaid retirement cost
(liability) recognized in
consolidated balance sheets $(4,990) $ (935) $(3,970) $ 381
====== ====== ====== ======
In addition to the funded benefit obligations shown above for basic
employee plans, the accrued retirement liability for unfunded supplemental
retirement plans for various officers and beneficiaries at December 31, 1995
and 1994, was $131.3 million and $102.6 million, respectively. The
actuarial present value of projected benefit obligations for these plans was
$161.2 million and $114.9 million at December 31, 1995 and 1994,
respectively. The discount rates used were 4.0% in both 1995 and 1994 for
AFLAC Japan, and 7.0% and 8.0% for AFLAC U.S. for 1995 and 1994,
respectively. Such supplemental retirement plans include a lifetime
obligation to the surviving spouse of the Company's former chairman of the
board. Current benefits are payable at .5% (1% prior to 1995) of the
previous year's "net earnings" as defined in the agreement.
Retirement expense for the Company's various funded and unfunded
supplemental plans has increased in 1994 and 1995 due to enhanced benefits,
early retirements, and changes in the various actuarial assumptions for
projecting future retirement obligations.
EXH 13-53
<PAGE>
POSTRETIREMENT BENEFITS: In addition to pension benefits,
substantially all U.S. employees of the Company participate in health care
benefit plans. Employees become eligible for these benefits, up to age 65,
if they terminate employment after age 55 with 15 years of service. Certain
employees are eligible for nonmedical benefits. The accumulated benefit
obligation for the years ended December 31, 1995 and 1994, was $10.5 million
and $10.0 million, respectively, based on an assumed discount rate of 7% and
8%, respectively.
Net postretirement benefit cost for the years ended December 31
included the following components:
(In thousands) 1995 1994 1993
------ ------ ------
Service cost $ 229 $ 251 $ 177
Interest cost 536 743 786
Amortization of unrecognized
(gains)/losses (207) - -
------ ------ ------
Postretirement benefit cost $ 558 $ 994 $ 963
====== ====== ======
Actuarial assumptions used were:
Projected health care cost trend
rate 13% 14% 15%
Ultimate trend rate 7% 7% 7%
Effect of a 1% point increase in the
health care cost trend rate on the:
Postretirement benefit obligation $ 675 $ 487 $ 541
Aggregate of service and
interest cost $ 89 $ 94 $ 71
Discount rate - periodic cost 8% 7% 8%
STOCK BONUS PLAN: AFLAC U.S. maintains a Stock Bonus Plan for eligible
U.S. sales associates. Contributions to the plan, which are determined
based on sales of insurance policies, are made by AFLAC U.S. to a trust and
are used to purchase the Parent Company's common stock for later
distribution to the participants. The participants are subject to vesting
requirements based on years of service. Any shares forfeited reduce future
contributions of AFLAC U.S. The net costs of this plan, which are included
in deferred policy acquisition costs, amounted to $8.0 million in 1995, $6.9
million in 1994 and $3.5 million in 1993.
EXH 13-54
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES
For information regarding proposed U.S. income tax adjustments by the
Internal Revenue Service, see Note 8.
LITIGATION: The Company is a defendant in various litigation
considered to be in the normal course of business. Some of this litigation
is pending in Alabama, where large punitive damages bearing little relation
to the actual damages sustained by plaintiffs have been awarded against
other companies, including insurers, in recent years. During 1995, the
Company settled certain litigation in Alabama related to an ancillary line
of business. However, the settlement was not material to the Company's
consolidated net earnings for the year. Although the final results of any
litigation cannot be predicted with certainty, the Company believes the
outcome of the litigation still pending will not have a material adverse
effect on the financial position of the Company.
LAND PURCHASE COMMITMENT: AFLAC Japan's administrative office building
is located on partially leased land. The Company is committed to purchase
the leased land, at fair value, upon the demand of the owner. As of
December 31, 1995, the fair value of the leased land was estimated to be 2.4
billion yen ($23.1 million).
EXH 13-55
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the consolidated financial statements of
AFLAC Incorporated and subsidiaries. The statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based upon management's best estimates and judgments. Informed judgments
and estimates are used for those transactions not yet complete or for which
the ultimate effects cannot be measured precisely. Financial information
elsewhere in this annual report is consistent with the information in the
financial statements.
The Company's internal controls are designed to reasonably assure that
AFLAC Incorporated's books and records reflect the transactions of the
Company, that assets are safeguarded, and that the Company's established
policies and procedures are followed. The effectiveness of the controls
system is supported by the selection and training of qualified personnel, an
organizational structure that provides an appropriate division of
responsibility, and a comprehensive internal audit program.
The Company engages KPMG Peat Marwick LLP as independent auditors to
audit its financial statements and express their opinion thereon. Their
audits include reviews and tests of the Company's internal controls to the
extent they believe necessary to determine and conduct the audit procedures
that support their opinion. Members of that firm also have the right of
full access to each member of management in conducting their audits. The
report of KPMG Peat Marwick LLP appears on the following page.
The Audit Committee of the board of directors, which is composed of
five outside directors, serves in an oversight role to assure the integrity
and objectivity of the Company's financial reporting process. The committee
meets periodically with representatives of management, as well as the
independent and internal auditors, to review matters of a material nature
related to financial reporting and the planning, results and recommendations
of audits. The independent and internal auditors have free access to the
Audit Committee, without management present, to discuss any matter they
believe should be brought to the attention of the committee. The committee
is also responsible for making recommendations to the board of directors
concerning the selection of the independent auditors.
/s/ Daniel P. Amos
- ---------------------------------
Daniel P. Amos
President and Chief Executive Officer
/s/ Kriss Cloninger III
- ---------------------------------
Kriss Cloninger III
Executive Vice President and Chief Financial Officer
EXH 13-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
AFLAC Incorporated:
We have audited the accompanying consolidated balance sheets of AFLAC
Incorporated and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AFLAC
Incorporated and subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 29, 1996
EXH 13-57
<PAGE>
<TABLE>
Unaudited Consolidated Quarterly Financial Data
(In thousands, except per-share amounts)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Three Months ended, March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------------------
1995 Amount % Change Amount % Change Amount % Change Amount % Change
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 1,713,676 23.1% $ 1,932,771 30.5% $ 1,811,718 13.1% $ 1,732,455 5.9%
Net earnings 84,873 21.3 92,916 33.9 87,960 15.6 83,308 7.6
- -----------------------------------------------------------------------------------------------------------------------------
Per common share:
Net earnings $ .56 27.3 $ .61 35.6 $ .60 22.4 $ .57 11.8
Cash dividends $ .077 $ .087 $ .087 $ .087
- -----------------------------------------------------------------------------------------------------------------------------
Three Months ended, March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------------------------------------------------------
1994 Amount % Change Amount % Change Amount % Change Amount % Change
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues $ 1,391,982 24.1% $ 1,481,203 19.8% $ 1,601,511 22.4% $ 1,636,062 22.6%
Net earnings 69,957 30.2* 69,378 18.1 76,059 17.8 77,396 15.8
- -----------------------------------------------------------------------------------------------------------------------------
Per common share:
Net earnings $ .44 29.4* $ .45 21.6 $ .49 19.5 $ .51 21.4
Cash dividends $ .067 $ .077 $ .077 $ .077
- -----------------------------------------------------------------------------------------------------------------------------
*Before cumulative effect of accounting changes in 1993.
Per-share amounts have been adjusted to reflect the three-for-two stock split payable on March 18, 1996.
EXH 13-58
</TABLE>
<PAGE>
EXHIBIT 21
EXH 21
<PAGE>
AFLAC INCORPORATED
SUBSIDIARIES
The following list sets forth the subsidiaries of the Company:
Company Jurisdiction
------- ------------
AFLAC Broadcast Partners ("ABP") Georgia
AFLAC Insurance Company of Canada ("AIC-C") Canada
AFLAC International, Inc. ("AI") Georgia
A.S. II, Inc. ("ASII") Tennessee
AFLAC Broadcast Group, Inc. ("ABG") Georgia
AFLAC Real Estate Holdings, Inc. ("AREH") Georgia
American Family Life Assurance Company of
Columbus ("AFLAC") Georgia
American Family Life Assurance Company
of New York ("AFLAC-NY") New York
Communicorp, Inc. ("COMM") Georgia
Hotel Columbus, Inc. ("HC") Georgia
WITN-TV, Inc. ("WITN") North Carolina
National Equity Corporation ("NEC") Georgia
The above subsidiaries are 100% directly owned by the Company, except:
WITN is 100% directly owned by ABG.
AFLAC-NY is 100% directly owned by AFLAC.
ABP is 99% owned by AFLAC and 1% owned by ABG.
HC is 30% owned by the Company.
EXH 21-1
<PAGE>
Exhibit 23.0
EXH 23.0
<PAGE>
KPMG PEAT MARWICK LLP
Certified Public Accountants
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' CONSENT
The Shareholders and The Board of Directors
AFLAC Incorporated
We consent to incorporation by reference in the Registration Statement No.
33-44720 on Form S-8 of AFLAC Incorporated of our report dated January 29,
1996, relating to the consolidated balance sheets of AFLAC Incorporated and
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, which report appears
in the 1995 annual report to shareholders and is incorporated by reference
in the December 31, 1995, annual report on Form 10-K of AFLAC Incorporated.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 26, 1996
EXH 23.0-1
<PAGE>
Exhibit 23.1
EXH 23.1
<PAGE>
KPMG PEAT MARWICK LLP
Certified Public Accountants
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' CONSENT
The Shareholders and The Board of Directors
AFLAC Incorporated
We consent to incorporation by reference in the Registration Statement No.
33-41926 on Form S-3 of AFLAC Incorporated of our report dated January 29,
1996, relating to the consolidated balance sheets of AFLAC Incorporated and
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, which report appears
in the 1995 annual report to shareholders and is incorporated by reference
in the December 31, 1995, annual report on Form 10-K of AFLAC Incorporated.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 26, 1996
EXH 23.1-1
<PAGE>
EXHIBIT 23.2
EXH 23.2
<PAGE>
KPMG PEAT MARWICK LLP
Certified Public Accountants
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' CONSENT
The Shareholders and The Board of Directors
AFLAC Incorporated
We consent to incorporation by reference in the Registration Statement No.
33-41552 on Form S-8 of AFLAC Incorporated of our report dated January 29,
1996, relating to the consolidated balance sheets of AFLAC Incorporated and
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, which report appears
in the 1995 annual report to shareholders and is incorporated by reference
in the December 31, 1995, annual report on Form 10-K of AFLAC Incorporated.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 26, 1996
EXH 23.2-1
<PAGE>
EXHIBIT 23.3
EXH 23.3
<PAGE>
KPMG PEAT MARWICK LLP
Certified Public Accountants
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' CONSENT
The Shareholders and The Board of Directors
AFLAC Incorporated
We consent to incorporation by reference in the Registration Statement No.
33-64535 on Form S-3 of AFLAC Incorporated of our report dated January 29,
1996, relating to the consolidated balance sheets of AFLAC Incorporated and
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995, which report appears
in the 1995 annual report to shareholders and is incorporated by reference
in the December 31, 1995, annual report on Form 10-K of AFLAC Incorporated.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 26, 1996
EXH 23.3-1
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Company's consolidated financial statements as filed in Form 10-K for the
year ended December 31, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 19,675,006
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 108,062
<MORTGAGE> 22,213
<REAL-ESTATE> 0
<TOTAL-INVEST> 20,040,825
<CASH> 4,139
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,565,027
<TOTAL-ASSETS> 25,337,986
<POLICY-LOSSES> 19,016,591
<UNEARNED-PREMIUMS> 301,452
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 316,938
<NOTES-PAYABLE> 327,268
0
0
<COMMON> 15,636
<OTHER-SE> 2,118,505
<TOTAL-LIABILITY-AND-EQUITY> 25,337,986
6,070,830
<INVESTMENT-INCOME> 1,024,960
<INVESTMENT-GAINS> (270)
<OTHER-INCOME> 95,100
<BENEFITS> 5,034,266
<UNDERWRITING-AMORTIZATION> 168,779
<UNDERWRITING-OTHER> 1,386,580
<INCOME-PRETAX> 600,995
<INCOME-TAX> 251,938
<INCOME-CONTINUING> 349,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 349,057
<EPS-PRIMARY> 2.33<F1>
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Per-share amounts have been adjusted to reflect the three-for-two stock
split payable March 18, 1996.
</FN>
</TABLE>
