SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarter ended September 30, 1996
Commission File No. 1-7434
AFLAC INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
GEORGIA 58-1167100
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1932 WYNNTON ROAD, COLUMBUS, GEORGIA 31999
-----------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (706) 323-3431
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class November 1, 1996
---------------------------- ------------------
Common Stock, $.10 Par Value 138,749,169 shares
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995................ 1
Consolidated Statements of Earnings -
Three Months Ended September 30, 1996 and 1995
Nine Months Ended September 30, 1996 and 1995........... 3
Consolidated Statements of Shareholders' Equity -
Nine Months Ended September 30, 1996 and 1995........... 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995........... 5
Notes to Consolidated Financial Statements................ 7
Review by Independent Certified Public
Accountants............................................. 11
Independent Auditors' Report.............................. 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 13
Part II. Other Information:
Item 1. Legal Proceedings.................................. 26
Item 6. Exhibits and Reports on Form 8-K................... 26
Items other than those listed above are omitted because they are not
required or are not applicable.
i
<PAGE>
Part I. Financial Information
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands - Unaudited)
September 30, December 31,
1996 1995
------------- -------------
ASSETS:
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost
$17,823,811 in 1996 and
$17,104,743 in 1995) $ 20,099,428 $ 19,675,006
Equity securities (cost $87,518 in
1996 and $80,912 in 1995) 130,751 108,062
Mortgage loans on real estate 18,262 22,213
Other long-term investments 3,005 3,343
Short-term investments 185,017 232,201
------------ ------------
Total investments 20,436,463 20,040,825
Cash 19,414 4,139
Receivables, primarily premiums 226,114 320,543
Receivables for security transactions 234,582 568
Accrued investment income 212,447 256,659
Deferred policy acquisition costs 2,594,188 2,565,027
Property and equipment, net 505,368 552,061
Securities held as collateral for
loaned securities 1,153,590 1,378,197
Intangible assets, net 100,233 104,546
Other 107,646 115,421
------------ ------------
Total assets $ 25,590,045 $ 25,337,986
============ ============
See accompanying Notes to Consolidated Financial Statements.
(continued)
1
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
(In thousands, except for per-share amounts - Unaudited)
September 30, December 31,
1996 1995
------------- -------------
Liabilities and Shareholders' Equity:
Liabilities:
Policy liabilities:
Future policy benefits $ 18,606,180 $ 18,000,296
Unpaid policy claims 1,073,288 1,016,295
Unearned premiums 283,549 301,452
Other policyholders' funds 216,128 316,938
------------ ------------
Total policy liabilities 20,179,145 19,634,981
Notes payable 370,516 327,268
Income taxes, primarily deferred 1,199,234 1,397,709
Payables for return of collateral on
loaned securities 1,153,590 1,378,197
Payables for security transactions 218,591 80,014
Other 435,299 385,676
------------ ------------
Total liabilities 23,556,375 23,203,845
------------ ------------
Shareholders' equity:
Common stock of $.10 par value. Authorized
175,000; issued 156,875 in 1996 and
156,358 in 1995 15,687 15,636
Additional paid-in capital 204,872 196,928
Unrealized foreign currency
translation gains 222,988 213,319
Unrealized gains on securities
available for sale 269,841 482,787
Retained earnings 1,797,896 1,577,605
Treasury stock (477,110) (351,117)
Notes receivable for stock purchases (504) (1,017)
------------ ------------
Total shareholders' equity 2,033,670 2,134,141
------------ ------------
Total liabilities and shareholders' equity $ 25,590,045 $ 25,337,986
============ ============
Shareholders' equity per share $ 14.67 $ 15.03
============ ============
Shares outstanding at end of period 138,606 141,974
============ ============
See accompanying Notes to Consolidated Financial Statements.
Share and per-share amounts have been adjusted to reflect the three-for-two
stock split paid on March 18, 1996.
2
<PAGE>
<TABLE>
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Earnings
<CAPTION>
(In thousands, except for Three Months Ended September 30, Nine Months Ended September 30,
per-share amounts - Unaudited) -------------------------------- -------------------------------
1996 1995 1996 1995
Revenues: ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Premiums, principally supplemental
health insurance $ 1,487,234 $ 1,531,396 $ 4,405,081 $ 4,617,262
Net investment income 257,709 259,125 761,993 772,168
Realized investment gains (losses) 4,350 (64) 3,921 85
Other income 26,286 21,261 76,161 68,650
----------- ----------- ----------- -----------
Total revenues 1,775,579 1,811,718 5,247,156 5,458,165
----------- ----------- ----------- -----------
Benefits and expenses:
Benefits and claims 1,234,584 1,270,332 3,651,644 3,830,392
Acquisition and operating expenses:
Amortization of deferred policy
acquisition costs 40,849 41,016 123,413 123,849
Insurance commissions 195,404 202,562 579,193 609,836
Insurance expenses 106,287 109,856 316,972 321,804
Interest expense 3,637 4,086 12,676 12,096
Other operating expenses 41,857 32,135 118,872 102,591
----------- ----------- ----------- -----------
Total acquisition and
operating expenses 388,034 389,655 1,151,126 1,170,176
----------- ----------- ----------- -----------
Total benefits and expenses 1,622,618 1,659,987 4,802,770 5,000,568
----------- ----------- ----------- -----------
Earnings before income taxes 152,961 151,731 444,386 457,597
Income taxes 64,616 63,771 183,771 191,848
----------- ----------- ----------- -----------
Net earnings $ 88,345 $ 87,960 $ 260,615 $ 265,749
=========== =========== =========== ===========
Net earnings per share $ .62 $ .60 $ 1.80 $ 1.76
=========== =========== =========== ===========
Shares used in computing earnings per share 143,483 147,654 144,891 150,726
=========== =========== =========== ===========
Cash dividends per share $ .10 $ .087 $ .287 $ .251
=========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements.
Share and per-share amounts have been adjusted to reflect the three-for-two stock split paid on March 18, 1996.
3
</TABLE>
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands - Unaudited)
Nine Months Ended September 30,
1996 1995
Common stock: -------------------------------
Balance at beginning of year $ 15,636 $ 15,600
Exercise of stock options 51 30
--------- ---------
Balance at end of period 15,687 15,630
--------- ---------
Additional paid-in capital:
Balance at beginning of year 196,928 192,899
Exercise of stock options 4,114 2,304
Gain on treasury stock reissued 3,913 986
Cash in lieu of fractional shares (83) -
--------- ---------
Balance at end of period 204,872 196,189
--------- ---------
Unrealized foreign currency translation gains:
Balance at beginning of year 213,319 174,091
Change in unrealized translation gains 9,669 39,215
--------- ---------
Balance at end of period 222,988 213,306
--------- ---------
Unrealized gains (losses) on securities
available for sale:
Balance at beginning of year 482,787 228,844
Change in unrealized gains and losses (212,946) 242,657
--------- ---------
Balance at end of period 269,841 471,501
--------- ---------
Retained earnings:
Balance at beginning of year 1,577,605 1,277,487
Net earnings 260,615 265,749
Cash dividends on common stock
($.287 per share in 1996, $.251 per
share in 1995) (40,324) (36,619)
--------- ---------
Balance at end of period 1,797,896 1,506,617
--------- ---------
Treasury stock:
Balance at beginning of year (351,117) (135,776)
Purchases of treasury stock (4,610 shares
in 1996 and 7,822 shares in 1995) (146,722) (213,186)
Cost of shares issued to sales associates
stock bonus plan and dividend reinvestment
plan 20,729 7,013
--------- ---------
Balance at end of period (477,110) (341,949)
--------- ---------
Notes receivable for stock purchases (504) (1,112)
--------- ---------
Total shareholders' equity $2,033,670 $2,060,182
========= =========
See accompanying Notes to Consolidated Financial Statements.
Share and per-share amounts have been adjusted to reflect the three-for-two
stock split paid on March 18, 1996.
4
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands - Unaudited)
Nine Months Ended
September 30,
-----------------------------
1996 1995
------------ ------------
Cash flows from operating activities:
Net earnings $ 260,615 $ 265,749
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Increase in policy liabilities 1,832,406 1,964,745
Deferred income taxes 57,626 44,455
Decrease in income taxes payable (96,132) (5,862)
Increase in deferred policy
acquisition costs (183,533) (188,326)
Increase in receivables and
advance premiums (41,308) (19,526)
Other, net 158,949 100,246
----------- -----------
Net cash provided by operating
activities 1,988,623 2,161,481
----------- -----------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed-maturity securities sold 1,515,492 515,920
Fixed-maturity securities matured
or called 459,598 451,706
Equity securities 7,695 17,978
Mortgage loans, net 3,667 3,683
Other long-term investments, net 338 173
Short-term investments, net 40,530 -
Costs of investments acquired:
Fixed-maturity securities (3,881,926) (2,881,037)
Equity securities (14,480) (24,038)
Short-term investments, net - (174,312)
Additions to property and equipment, net (8,997) (13,080)
----------- -----------
Net cash used by investing activities (1,878,083) (2,103,007)
----------- -----------
(continued)
5
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands - Unaudited)
Nine Months Ended
September 30,
-----------------------------
1996 1995
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 125,937 209,250
Principal payments under debt obligations (60,894) (27,053)
Dividends paid to shareholders (40,324) (36,619)
Purchases of treasury stock (146,722) (213,186)
Treasury stock reissued 24,642 7,999
Other, net 4,083 2,335
----------- -----------
Net cash used by
financing activities (93,278) (57,274)
----------- -----------
Effect of exchange rate changes on cash (1,987) (783)
----------- -----------
Net change in cash 15,275 417
Cash at beginning of year 4,139 17,643
----------- -----------
Cash at end of period $ 19,414 $ 18,060
=========== ===========
Supplemental disclosures of cash flow information:
Cash payments during the year for:
Interest on debt obligations $ 10,861 $ 10,080
Income taxes 222,113 153,381
Non-cash financing activities included capital lease obligations incurred
for computer equipment totaling $4,638 in 1996 and $2,585 in 1995.
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of AFLAC Incorporated and subsidiaries (the "Company")
contain all adjustments (none of which were other than normal recurring
accruals) necessary to fairly present the financial position as of September
30, 1996, and the results of operations for the three-month and nine-month
periods ended September 30, 1996 and 1995, and changes in shareholders'
equity and cash flows for the nine months ended September 30, 1996 and 1995.
Results of operations for interim periods are not necessarily indicative of
results for the entire year.
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. When additional information becomes available (or
actual amounts are determinable), the recorded estimates may be revised and
reflected in operating results.
The financial statements should be read in conjunction with the
financial statements included in the Company's annual report to shareholders
for the year ended December 31, 1995.
All share and per-share amounts have been adjusted to reflect the
three-for-two stock split paid on March 18, 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill. This Statement requires that
long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be
based on the fair value of the asset. Long-lived assets and certain
identifiable intangibles to be disposed of must be reported at the lower of
carrying amount or fair value less related selling costs. There was no
material effect on the financial statements from the adoption of this new
accounting standard.
SFAS No. 123, Accounting for Stock-Based Compensation, is effective for
1996. This statement provides a choice of accounting methods for employee
stock compensation plans, including stock option 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
method prescribed by Accounting Principles Board Opinion No. 25 (APB No.
25). Entities electing to remain with the method prescribed by APB
7
<PAGE>
No. 25 must disclose 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 method
prescribed by APB No. 25 and include the required disclosures in the year-
end financial statements.
The Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, in June 1996. This statement provides
accounting standards for determining whether transfers of financial assets
are sales or secured borrowings. The statement must be applied
prospectively to all applicable transactions occurring after December 31,
1996. Earlier or retroactive application is not permitted. Based on the
Company's current security lending agreements (see Note 5), the Company will
no longer recognize securities held as collateral as an asset, nor the
related liability for return of such collateral, beginning in 1997 as
required by the new standard. This change will have no affect on the
Company's net earnings or shareholders' equity.
2. In August 1996, the Company entered into sales agreements for the sale
of its Broadcast Division business consisting of seven network-affiliated
television stations. Finalization of the transaction is subject to approval
by the Federal Communications Commission. It is expected that the closings
will occur in late 1996 or early 1997. Total revenue and pretax earnings
before interest expense of the Broadcast Division for the nine months ended
September 30, 1996, were $66.5 million and $18.1 million, respectively.
Upon closing the sales transaction in late 1996 and early 1997, the Company
will receive $455.0 million in cash. After the date of close, the Company
will also receive $15 million ($6.3 million at fair value) in future
advertising credits over a five-year period and receive cash for an
adjustment of various current assets and liabilities. An aggregate pretax
gain on the sale of approximately $320 million will be recognized upon the
closings.
3. The Company has a loan agreement that provides for bank borrowings up
to $500 million in either U.S. dollars or Japanese yen. At September 30,
1996, borrowings of 33.0 billion yen ($297.3 million) were outstanding under
this agreement. The Company has entered into interest rate swaps with
notional amounts equal to the unpaid principal amount during the six-year
term of the loan. These transactions effectively change the Company's
interest rate exposure on this loan from floating rates to fixed interest
rates. The fixed-rate is 2.74% after the effect of the swaps. Interest
payments are made based on floating interest rates, and the Company either
pays to or receives from the counterparty an amount necessary to equal the
fixed swap rate. At September 30, 1996, the floating rate, based on the
three-month Tokyo Interbank Offered Rate (TIBOR) plus 25 basis points, was
.81%.
In the second quarter of 1996, the Company converted another loan
agreement with outstanding principal of $29.3 million and a 5.965% fixed
rate (after interest rate swap) from dollar-denominated to yen-denominated
amounts with a floating interest rate based on TIBOR plus 25 basis points.
At September 30, 1996, bank borrowings of 3.1 billion yen ($28.2 million)
were outstanding under this agreement at a floating interest rate of .87%.
8
<PAGE>
The Company has designated these yen-denominated borrowings as a hedge
of its net investment in AFLAC Japan. Foreign currency translation
gains/losses are included in the unrealized foreign currency translation
gains component in shareholders' equity. Outstanding principal and related
accrued interest payable on the yen-denominated borrowings were translated
into dollars at end-of-period exchange rates. Interest expense is
translated at average monthly exchange rates for the period the interest
expense is incurred.
4. The Company classifies all fixed-maturity securities as "available for
sale." All fixed-maturity and equity securities are carried at fair value.
The related unrealized gains and losses, less amounts applicable to policy
liabilities and deferred income taxes, are reported in a separate component
of shareholders' equity. The portion of unrealized gains credited to policy
liabilities represents gains that would not inure to the benefit of the
shareholders if such gains were actually realized. These amounts are
necessary to cover policy reserve interest requirements based on market
investments yields at these dates.
The effect on shareholders' equity at the following dates was:
(In thousands) September 30, 1996 December 31, 1995
------------------ ------------------
Securities available
for sale -
unrealized gains $ 2,318,850 $ 2,597,413
Less:
Policy liabilities 1,872,702 1,865,077
Deferred income
taxes 176,307 249,549
------------- -------------
Shareholders' equity,
net unrealized gains
on securities
available for sale $ 269,841 $ 482,787
============= =============
5. AFLAC Japan uses short-term (usually seven days) security lending
arrangements to increase investment income with minimal risk. At September
30, 1996 and December 31, 1995, the Company held Japanese government bonds
as collateral for loaned securities in the amount of $1.2 billion and $1.4
billion, respectively, at market value. 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 (see Note 1). 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.
6. 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. Although the final results of any
litigation cannot be predicted with certainty, the Company believes that the
outcome of pending litigation will not have a material adverse effect on the
financial position of the Company.
9
<PAGE>
The outstanding income tax issues with the Internal Revenue Service
(IRS) in connection with their examination of the Company's U.S.
consolidated income tax returns for the years 1989 through 1991 were settled
in July 1996. These issues are described in Note 8 of the Notes to the
Consolidated Financial Statements in the Company's annual report to
shareholders for the year 1995. There are no material adjustments to the
income tax returns as originally filed.
The IRS is currently examining the Company's U.S. consolidated income
tax returns for the years 1992 through 1994.
10
<PAGE>
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The September 30, 1996 and 1995 financial statements included in this
filing have been reviewed by KPMG Peat Marwick LLP, independent certified
public accountants, in accordance with established professional standards
and procedures for such a review.
The report of KPMG Peat Marwick LLP commenting upon their review is
included on page 12.
11
<PAGE>
KPMG PEAT MARWICK LLP
Certified Public Accountants
303 Peachtree Street, N.E. Telephone: (404) 222-3000
Suite 2000 Telefax: (404) 222-3050
Atlanta, GA 30308
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
AFLAC Incorporated:
We have reviewed the accompanying consolidated balance sheet of AFLAC
Incorporated and subsidiaries as of September 30, 1996, and the related
consolidated statements of earnings for the three-month and nine-month
periods ended September 30, 1996 and 1995, and the consolidated statements
of cash flows and shareholders' equity for the nine-month periods ended
September 30, 1996 and 1995. These consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the accompanying consolidated balance sheet of AFLAC Incorporated
and subsidiaries as of December 31, 1995, and the related consolidated
statements of earnings, shareholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated January 29, 1996,
we expressed an unqualified opinion on those consolidated financial
statements.
KPMG PEAT MARWICK LLP
October 22, 1996
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" to encourage companies to provide prospective information about
their companies, so long as those statements are identified as forward-
looking and are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed in the statement. AFLAC Incorporated and subsidiaries (the
"Company") desires to take advantage of these provisions. This report
contains cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in forward-
looking statements in the following discussion and in any other statements
made by officers of the Company in oral discussions with analysts and
contained in documents filed with the Securities and Exchange Commission
(the "SEC"). Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. In particular, statements
containing words such as "expect," "anticipate," "believe," "goal,"
"objective" or similar words generally qualify as forward-looking
statements. The Company undertakes no obligation to update such forward-
looking statements.
The Company cautions that the following factors, in addition to other
factors mentioned from time to time in the Company's reports filed with the
SEC, could cause the Company's actual results to differ materially:
regulatory developments, competitive conditions, new products, Japanese
Ministry of Finance approval of profit repatriations to the U.S., general
economic conditions in the U.S. and Japan, adequacy of reserves, credit and
other risks associated with the Company's investment portfolio, significant
changes in interest rates, and fluctuations in foreign currency exchange
rates.
The primary business activity of the Company 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 employees. 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.
In August 1996, the Company entered into sales agreements for the sale
of its Broadcast Division business consisting of seven network-affiliated
television stations. For further information, see Note 2 of the Notes to
the Consolidated Financial Statements.
The Company raised its primary financial objective from 13%-15% annual
growth in operating earnings per share to 15%-17%, excluding the effect of
foreign currency exchange, for 1997 through 2000.
The Company paid a three-for-two stock split on March 18, 1996. All
share and per-share amounts have been restated for the stock split.
13
<PAGE>
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations by business component for the periods shown and the percentage
change from the prior period.
SUMMARY OF OPERATING RESULTS BY BUSINESS COMPONENT
(In millions, except for per-share amounts)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------- --------------------------------------
Percentage Change Percentage Change
Over Previous Over Previous
Period 1996 1995 Period 1996 1995
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Pretax operating earnings:
Insurance operations (excluding
realized investment gains and
losses):
AFLAC Japan..................... (4.3)% $134.1 $140.0 (6.2)% $399.4 $425.8
AFLAC U.S....................... 37.7 33.4 24.3 24.6 94.1 75.5
------ ------ ------ ------
Total U.S. and Japan
insurance................... 1.9 167.5 164.3 (1.6) 493.5 501.3
Realized investment
gains (losses).................... 4.4 (.1) 3.9 .1
Broadcast division.................. 47.9 6.4 4.4 22.3 18.1 14.8
Interest expense,
noninsurance operations........... (2.7) (3.1) (10.0) (9.0)
Corporate expenses, other
operations and eliminations....... (63.6) (22.6) (13.8) (23.1) (61.1) (49.6)
------ ------ ------ ------
Earnings before income taxes...... .8 153.0 151.7 (2.9) 444.4 457.6
Income taxes.......................... 1.3 64.7 63.7 (4.2) 183.8 191.9
------ ------ ------ ------
Net earnings...................... .4 $ 88.3 $ 88.0 (1.9) $ 260.6 $ 265.7
====== ====== ====== ======
Net earnings per share................ 3.3 $ .62 $ .60 2.3 $ 1.80 $ 1.76
====== ====== ====== ======
==========================================================================================================================
14
</TABLE>
<PAGE>
As in the first six months, AFLAC's financial results as reported in
dollars were suppressed due to the weakening of the yen. However, the
Company's performance during the third quarter excluding the effect of
unrealized foreign currency translation was strong. In both Japan and the
United States, the Company continued to demonstrate market leadership,
producing significant gains in new sales and solid financial performance in
local-currency terms.
Excluding the impact of the yen, operating earnings per share were up
15.0% for the third quarter and 15.9% for the first nine months of 1996
compared with the respective periods in 1995. For the first nine months of
1996, the Company again achieved its primary financial objective of 15%
annual growth in operating earnings per share before currency fluctuations.
The weakening of the yen in relation to the dollar lowered the
Company's operating earnings by $.07 per share during the third quarter and
$.24 per share for the first nine months. This is solely attributable to
the translation effect of the weakening yen and not to any fundamental
change in business. If the exchange rate in 1996 had remained unchanged
from its 1995 level, the increases in revenues, benefits, expenses and
earnings would have been significantly higher than reported, as the
following table illustrates.
Supplemental Consolidated Data
Selected Percentage Changes
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
--------------------- ---------------------
Adjusted to Adjusted to
Exclude Exclude
Foreign Foreign
As Currency As Currency
Reported Changes* Reported Changes*
-------- ----------- -------- -----------
Premium income (2.9)% 10.0% (4.6)% 9.3%
Net investment income (.5) 11.7 (1.3) 12.1
Total revenues (2.0) 10.7 (3.9) 9.8
Total benefits and expenses (2.3) 10.4 (4.0) 9.7
Operating earnings .8 12.8 (1.6) 11.5
Operating earnings per share 3.3 15.0 2.3 15.9
- ----------------------------------------------------------------------------
*Amounts excluding foreign currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable period in
the prior year.
============================================================================
During the first half of 1995, the yen strengthened substantially
versus the dollar. In the third quarter of 1995, the yen began to weaken in
relation to the dollar, and it is expected to remain weaker throughout 1996.
A weaker yen has a negative effect on net earnings reported in U.S. dollars.
However, all of AFLAC Japan's premiums and claims and most of its investment
income and expenses are yen-denominated. The majority of AFLAC Japan's
invested assets are also 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.
15
<PAGE>
The Company's objective for 1996 is to increase operating earnings per
share by 15% for the year, excluding the effect of currency translation.
However, if that objective is achieved and the yen/dollar exchange rate
averages 108.00 for the year, compared with the 1995 average rate of 94.10,
operating earnings per share as reported (including foreign currency
translation) would only increase by approximately 3% for the year 1996.
AFLAC Japan's pretax operating earnings (excluding realized investment
gains/losses) in yen increased 11.0% for the three months ended September
30, 1996, compared with the third quarter of 1995 and increased 10.0% for
the nine months ended September 30, 1996, compared with the nine months
ended September 30, 1995. The reported U.S. dollar results for AFLAC Japan
were negatively affected by the unfavorable average yen-to-dollar exchange
rate of 107.50 for the nine months ended September 30, 1996, compared with
91.62 for the first nine months of 1995. As a result, the percentage change
in U.S. dollars for AFLAC Japan's pretax operating earnings was a decrease
of 4.3% for the three months ended September 30, 1996, compared with the
third quarter of 1995 and a decrease of 6.2% for the nine months ended
September 30, 1996, compared with the nine months ended September 30, 1995.
During the third quarter, the Company acquired 2.3 million shares of
its common stock. For the first nine months of 1996, the Company purchased
4.6 million of its shares. On October 22, 1996, the board of directors
authorized the Company to purchase an additional 7.0 million shares of its
common stock. Including shares remaining under a previous authorization,
the Company currently has approval to purchase up to 9.3 million shares.
In July 1996, AFLAC Japan repatriated profits to AFLAC U.S. in the
amount of $217.3 million (23.5 billion yen). AFLAC U.S. in turn made an
additional dividend payment to AFLAC Incorporated (the "Parent Company") in
the amount of $36.2 million. AFLAC Japan also 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, repatriations
benefit 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.
Management estimates these transfers have benefited consolidated net
earnings by $10.2 million and $5.0 million for the three months ended
September 30, 1996 and 1995, respectively and $17.6 million and $9.2 million
for the nine months ended September 30, 1996 and 1995, respectively.
Repatriated profits represent a portion of the after-tax earnings
reported to the Japanese Ministry of Finance as of March 31 each year. Such
regulatory basis earnings are based on accounting principles that differ
materially from generally accepted accounting principles. Such differences
relate primarily to valuation of investments, policy benefit and claim
reserves, acquisition costs, and deferred income taxes. Japanese regulatory
earnings and related profit repatriations may therefore vary materially from
year to year because of these differences. At present, management believes
that the 1997 profit repatriation amount will likely range between the
amounts transferred in 1995 and 1996.
The Company had approximately $76.9 million in short-term forward
foreign exchange contracts outstanding related to the profit transfer in
1996. These contracts closed in July, coinciding with the transfer of the
repatriated funds.
16
<PAGE>
Corporate expenses primarily consist of overhead expenses such as
salary costs, retirement provisions, professional fees and litigation
expenses. Corporate expenses in 1996 are generally in line with those
incurred in 1995 except for higher litigation expenses in the third quarter
of 1996 compared with the third quarter of 1995.
AFLAC JAPAN
AFLAC Japan, a branch of AFLAC and the principal contributor to the
Company's earnings, is the largest foreign insurance company in Japan in
terms of premium income among all life and non-life insurance companies.
As discussed above, AFLAC Japan transferred profits to AFLAC U.S.,
which distorts comparisons of operating results between periods. 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 periods. The pro
forma adjustment represents cumulative investment income foregone by AFLAC
Japan on funds repatriated to AFLAC U.S. during 1992 through 1996.
17
<PAGE>
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1996 1995 1996 1995
------------------ ------------------
Premium income................... $1,245.1 $1,310.4 $3,694.6 $3,966.5
Investment income, as adjusted*.. 231.8 237.7 686.7 711.3
Other income..................... .5 (1.6) 1.0 .1
------- ------- ------- -------
Total revenues, as adjusted*... 1,477.4 1,546.5 4,382.3 4,677.9
------- ------- ------- -------
Benefits and claims.............. 1,082.5 1,134.2 3,205.8 3,426.0
Operating expenses............... 253.5 266.4 759.4 811.0
------- ------- ------- -------
Total benefits and expenses.... 1,336.0 1,400.6 3,965.2 4,237.0
------- ------- ------- -------
Pretax operating earnings,
as adjusted*................ 141.4 145.9 417.1 440.9
Investment income applicable to
profit repatriations............ (7.3) (5.9) (17.7) (15.1)
------- ------- ------- -------
Pretax operating earnings.... $ 134.1 $ 140.0 $ 399.4 $ 425.8
======= ======= ======= =======
- ---------------------------------------------------------------------------
Percentage changes in dollars
over previous period:
Premium income................. (5.0)% 13.1% (6.9)% 24.2%
Investment income*............. (2.5) 19.6 (3.5) 27.3
Total revenues*................ (4.5) 13.9 (6.3) 24.6
Pretax operating earnings*..... (3.1) 15.5 (5.4) 23.3
Pretax operating earnings...... (4.3) 14.6 (6.2) 22.0
- ---------------------------------------------------------------------------
Percentage changes in yen
over previous period:
Premium income................. 10.0% 6.9% 9.3% 10.0%
Investment income*............. 13.0 13.1 13.3 12.9
Total revenues*................ 10.6 7.6 9.9 10.4
Pretax operating earnings*..... 12.4 9.4 11.0 9.4
Pretax operating earnings...... 11.0 8.6 10.0 8.2
- ---------------------------------------------------------------------------
Ratios to total revenues, as adjusted:*
Benefits and claims............ 73.2% 73.4% 73.2% 73.3%
Operating expenses............. 17.2 17.2 17.3 17.3
Pretax operating earnings...... 9.6 9.4 9.5 9.4
Ratio of pretax operating earnings
to total reported revenues...... 9.1 9.1 9.2 9.1
- ----------------------------------------------------------------------------
*Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income for the three months ended
September 30, 1996 and 1995 of $7.3 million and $5.9 million, respectively,
and for the nine months ended September 30, 1996 and 1995 of $17.7 million
and $15.1 million, respectively, foregone due to profit repatriations.
============================================================================
18
<PAGE>
As previously mentioned, the yen continued to weaken against the dollar
in the third quarter. The average exchange rate for the first nine months of
1996 was 107.50, which was 14.8% weaker than the average rate of 91.62 for
the first nine months of 1995. As a result, growth rates for AFLAC Japan in
dollar terms were lower than those reported in yen. The average exchange
rate for the full year 1995 was 94.10.
The increase in premium income in yen was due to sales of new policies
and continued excellent policy persistency. As management anticipated,
AFLAC Japan's new sales were exceptionally strong during the third quarter.
New annualized premium sales in yen rose 51.7% to 23.0 billion yen ($211.9
million), marking the best quarterly production in AFLAC Japan's history.
For the nine months, new annualized premium sales in yen were up 21.2% to
60.2 billion yen ($559.6 million).
These strong sales results reflect the continued success of AFLAC
Japan's new living benefit life product, which accounted for more than 43%
of new annualized premium sales for the first nine months of the year. In
addition, third quarter sales benefited from the sales agencies' intensified
efforts to sell AFLAC Japan's products prior to a premium rate increase
scheduled to take effect on all policies sold after October 1, 1996.
Management expects sales to decline for the last three months of 1996,
primarily due to slowed production after the premium rate increase and tough
sales comparisons to a very strong fourth quarter in 1995. However,
management originally set AFLAC Japan's full-year objective for new sales
taking this anticipated sales pattern into account. As such, management
continues to believe that AFLAC Japan will meet its sales target of a 10%
increase in new annualized premium in yen for 1996. Looking forward to
1997, the sales target will be an 8%-10% increase in new annualized premium
in yen for the year.
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 increased premium rates by approximately 12%-14% on all new policy
issues beginning in the fourth quarter of 1996.
Finding attractive investment yields for the Company's substantial cash
flows in Japan remains a significant challenge. At the end of the third
quarter, the yield to maturity on AFLAC Japan's fixed-maturity portfolio was
5.66%, compared with 5.98% a year ago. This decline reflects several years
of investing in a low interest rate environment. During the third quarter,
AFLAC Japan purchased yen-denominated securities at an average yield to
maturity of 3.91%. Including dollar-denominated purchases, the blended
yield to maturity was 4.23% for the quarter. For the nine months, the
average yield to maturity on yen purchases was 3.92%, while the blended
yield to maturity was 4.11% for the same period. The return on average
invested assets was 5.56% for the first nine months, compared with 5.83% for
the first nine months of 1995 and 5.81% for the full year 1995.
19
<PAGE>
AFLAC U.S.
AFLAC U.S. pretax operating results improved substantially, assisted by
additional investment income earned on profit transfers received from AFLAC
Japan. A portion of the profit transfers, in turn, were used to increase
dividend payments from AFLAC U.S. to the Parent Company in the amounts of
$57.6 million in the first nine months of 1996, and $21.2 million, $51.9
million and $10.1 million for the full years 1995, 1994 and 1993,
respectively. Estimated investment income earned from profits repatriated
to and retained by AFLAC U.S. from 1992 through 1996 has been reclassified
in the following presentation in order to improve comparability between
periods. In addition, the third quarter results for 1995 were adversely
affected by the Company's decision to settle certain litigation in Alabama
related to an ancillary line of business.
20
<PAGE>
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 1996 1995 1996 1995
------------------ ------------------
Premium income................... $ 238.9 $ 217.0 $ 700.9 $ 638.5
Investment income, as adjusted*.. 22.0 19.7 64.3 57.7
Other income..................... .4 (.2) 1.1 .4
------ ------ ------ ------
Total revenues, as adjusted*... 261.3 236.5 766.3 696.6
------ ------ ------ ------
Benefits and claims.............. 149.2 133.3 437.5 395.2
Operating expenses............... 88.2 85.3 257.6 240.5
------ ------ ------ ------
Total benefits and expenses.... 237.4 218.6 695.1 635.7
------ ------ ------ ------
Pretax operating earnings,
as adjusted*................ 23.9 17.9 71.2 60.9
Investment income applicable to
profit repatriations............ 9.5 6.4 22.9 14.6
------ ------ ------ ------
Pretax operating earnings.... $ 33.4 $ 24.3 $ 94.1 $ 75.5
====== ====== ====== ======
- ---------------------------------------------------------------------------
Percentage increases
over previous period:
Premium income................. 10.1% 8.9% 9.8% 8.5%
Investment income*............. 11.9 13.6 11.4 13.9
Total revenues*................ 10.5 8.9 10.0 8.6
Pretax operating earnings*..... 33.8 (7.7) 17.0 7.0
Pretax operating earnings...... 37.7 2.8 24.6 15.0
- ---------------------------------------------------------------------------
Ratios to total revenues,
as adjusted:*
Benefits and claims............ 57.0% 56.3% 57.1% 56.8%
Operating expenses............. 33.8 36.1 33.6 34.5
Pretax operating earnings...... 9.2 7.6 9.3 8.7
Ratio of pretax operating earnings
to total reported revenues...... 12.3 10.0 11.9 10.6
- ----------------------------------------------------------------------------
*Excludes estimated investment income for the three months ended September
30, 1996 and 1995 of $9.5 million and $6.4 million, respectively, and for
the nine months ended September 30, 1996 and 1995 of $22.9 million and $14.6
million, respectively, related to investment of profit repatriation funds
retained by AFLAC U.S.
============================================================================
The increase in premium income primarily resulted from strong increases
in new sales during the last 12 months. The U.S. sales force set a record
for new sales in the third quarter of 1996. Total new annualized premium
sales increased 12.9% to $81.6 million during the quarter, marking the first
time sales have surpassed $80.0 million in a single quarter. Total new
sales for the nine months rose 14.9% to $235.3 million. For the
21
<PAGE>
last several years, the Company's sales success has been driven by a
broadened product line and expanded distribution system. The Company
continues to see a strong and growing demand for affordable, quality
supplemental insurance products that can be conveniently purchased through
payroll deduction.
The increase in investment income was primarily due to the increase in
invested assets. During the third quarter, available cash flow was invested
at an average yield-to-maturity of 7.76% compared with 7.50% during the
third quarter of 1995. The overall return on average invested assets, net
of investment expenses, was 7.30% for the first nine months of 1996 compared
with 7.33% for the same period of 1995.
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.
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. The Company's advertising expense
was $15.0 million and $11.3 million for the nine months ended September 30,
1996 and 1995, respectively. Management expects the pretax operating profit
margin, which was 8.9% for the year 1995 excluding the effect of
repatriation, to range between 9.0% and 9.5% for the year 1996.
FINANCIAL ACCOUNTING STANDARDS BOARD'S STATEMENTS
For information regarding Statements of Financial Accounting Standards
(SFAS) adopted during 1996 and those to be adopted in 1997, see Note 1 of
the Notes to the Consolidated Financial Statements.
ANALYSIS OF FINANCIAL CONDITION
Since December 31, 1995, the financial condition of the Company has
remained strong in the functional currencies of its operations. Due to the
relative size of AFLAC Japan, changes in the yen/dollar exchange rate can
have a significant effect on the Company's reported financial condition.
The yen/dollar exchange rate at the end of each period is used to convert
yen-denominated balance sheet items into U.S. dollars for reporting
purposes. The exchange rate at September 30, 1996, was 111.00 yen to one
U.S. dollar, 7.3% weaker than the exchange rate of 102.95 as of December 31,
1995. Management estimates that the weaker yen rate decreased invested
assets by $1.3 billion, total assets by $1.7 billion, and total liabilities
by $1.7 billion versus the amounts that would have been reported based on
the exchange rate as of December 31, 1995.
Fixed-maturity securities available for sale are carried at fair value.
Net unrealized gains of $2.3 billion on investments in fixed-maturity
securities at September 30, 1996, consisted of $2.3 billion in gross
unrealized gains and $46.8 million in gross unrealized losses. During 1996,
net unrealized gains decreased by $294.6 million.
22
<PAGE>
The following table shows the effect of unrealized gains and losses on
invested assets at:
(In thousands) September 30, December 31, % Change
1996 1995
------------ ------------ ----------
AFLAC U.S.:
Total invested assets
excluding unrealized
gains on securities
available for sale $ 1,823,253 $ 1,543,549 18.1%
Unrealized gains/(losses)
on securities available
for sale 63,176 128,697
---------- ----------
Total invested assets $ 1,886,429 $ 1,672,246 12.8%
========== ========== =====
AFLAC Japan:
Total invested assets
excluding unrealized
gains on securities
available for sale $16,310,414 $15,924,083 2.4%
Unrealized gains/(losses)
on securities available
for sale 2,255,004 2,468,018
---------- ----------
Total invested assets $18,565,418 $18,392,101 .9%
========== ========== =====
Consolidated:
Total invested assets
excluding unrealized
gains on securities
available for sale $18,137,027 $17,447,551 4.0%
Unrealized gains/(losses)
on securities available
for sale 2,318,850 2,597,413
---------- ----------
Total invested assets $20,455,877 $20,044,964 2.0%
========== ========== =====
The continued growth in invested assets reflects the strength of the
Company's primary business, the substantial cash flows from operations, the
strong new annualized premium sales by AFLAC U.S. and the substantial
renewal premiums collected by AFLAC Japan. Offsetting these positive
factors was the weaker yen/dollar exchange rate and a decrease in unrealized
market gains.
23
<PAGE>
Investments continued to consist of high-quality securities. 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 following table presents the percentages of
the Company's fixed-maturity securities available for sale, at amortized
cost by quality rating.
September 30, 1996 December 31, 1995
------------------ -----------------
AAA 48.3% 49.2%
AA 20.5 22.2
A 24.8 24.6
BBB 6.4 4.0
----- -----
100.0% 100.0%
Private placement investments accounted for 26.2% and 23.1% of the
Company's total fixed-maturity securities available for sale as of September
30, 1996 and December 31, 1995, respectively. AFLAC Japan has made
investments in the private sector to secure higher yields than those
available from Japanese government bonds. At the same time, the Company has
adhered to its conservative standards for credit quality.
Policy liabilities increased $544.2 million, or 2.8%, during the first
nine months of 1996. AFLAC Japan increased $412.5 million, or 2.3% (10.3%
increase in yen), and AFLAC U.S. increased $125.9 million, or 8.3%. The
weaker yen rate decreased reported policy liabilities by $1.4 billion.
Increases in policy liabilities are due to the addition of new business and
the aging of policies in force.
The income tax liability decreased by $198.5 million, or 14.2%, since
December 31, 1995. The decrease is primarily due to tax payments in Japan
during the first and third quarters of 1996 and the weaker yen.
The Company's ratio of debt to total capitalization (debt plus
shareholders' equity, excluding the unrealized market gains on securities
available for sale) was 17.4% and 16.5% as of September 30, 1996 and
December 31, 1995, respectively. For further information concerning notes
payable, see Note 3 of the Notes to the Consolidated Financial Statements.
AFLAC Japan uses security lending arrangements to increase investment
income with minimal risk. For information concerning such arrangements, see
Note 5 of the Notes to the Consolidated Financial Statements.
The Company's insurance operations continue to provide the primary sources
of liquidity for the Company. 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
24
<PAGE>
costs and therefore are not subject to the increasing risks of medical cost
inflation.
The achievement of continued long-term growth will require growth in the
statutory capital and surplus of the Company's 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. The sale
of the Broadcast Division business that is presently pending finalization (see
Note 2 of the Notes to the Consolidated Financial Statements) will increase the
Company's capital resources upon closing of the transaction. Management
believes outside sources for additional debt and equity capital will continue to
be available for capital expenditures, business expansion and treasury share
purchases.
Parent Company capital resources are largely dependent upon the ability of
the subsidiaries to pay management fees and dividends. The Georgia Insurance
Department imposes certain limitations and restrictions on payments of
dividends, management fees, loans and advances by AFLAC to the Parent Company.
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 $244.1 million and $168.9 million in the first nine months of 1996
and 1995, respectively, and $179.5 million in the full year 1995. The MOF
requires that certain solvency standards be met in order for profit transfers to
occur. These standards are similar to U.S. risk-based capital requirements. For
additional information on regulatory restrictions on dividends, profit transfers
and other remittances, see Note 10 of the Notes to the Consolidated Financial
Statements in the Company's annual report to shareholders for the year ended
December 31, 1995.
For information regarding pending litigation, see Note 6 of the
accompanying Notes to the Consolidated Financial Statements.
The board of directors has declared a fourth quarter cash dividend of
$.10 per share. The dividend is payable on December 2, 1996, to
shareholders of record at the close of business on November 15, 1996.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. 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. Although the final results of any
litigation cannot be predicted with certainty, the Company believes that the
outcome of pending litigation will not have a material adverse effect on the
financial position of the Company.
ITEMS 2, 3, 4 and 5
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.0 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
Sale of Broadcast Division, August 13, 1996.
26
<PAGE>
SIGNATURES
Pursuant to the requirements 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: November 8, 1996 /s/ KRISS CLONINGER, III
------------------------ ---------------------------------
KRISS CLONINGER, III
Executive Vice President;
Treasurer and
Chief Financial Officer
Date: November 8, 1996 /s/ NORMAN P. FOSTER
------------------------ ---------------------------------
NORMAN P. FOSTER
Executive Vice President,
Corporate Finance
27
<PAGE>
EXHIBITS FILED WITH CURRENT FORM 10-Q:
27.0 - Financial Data Schedule (for SEC use only)
28
<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-Q for the
quarter ended September 30, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 20,099,428
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 130,751
<MORTGAGE> 18,262
<REAL-ESTATE> 0
<TOTAL-INVEST> 20,436,463
<CASH> 19,414
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,594,188
<TOTAL-ASSETS> 25,590,045
<POLICY-LOSSES> 19,679,468
<UNEARNED-PREMIUMS> 283,549
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 216,128
<NOTES-PAYABLE> 370,516
0
0
<COMMON> 15,687
<OTHER-SE> 2,017,983
<TOTAL-LIABILITY-AND-EQUITY> 25,590,045
4,405,081
<INVESTMENT-INCOME> 761,993
<INVESTMENT-GAINS> 3,921
<OTHER-INCOME> 76,161
<BENEFITS> 3,651,644
<UNDERWRITING-AMORTIZATION> 123,413
<UNDERWRITING-OTHER> 1,027,713
<INCOME-PRETAX> 444,386
<INCOME-TAX> 183,771
<INCOME-CONTINUING> 260,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260,615
<EPS-PRIMARY> 1.80<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 paid March 18, 1996. Financial Data Schedules for periods ending
prior to December 31, 1995, have not been restated for this stock split.
</FN>
</TABLE>
