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 June 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 August 2, 1996
---------------------------- ------------------
Common Stock, $.10 Par Value 139,450,624 shares
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995.................... 1
Consolidated Statements of Earnings -
Three Months Ended June 30, 1996 and 1995
Six Months Ended June 30, 1996 and 1995................. 3
Consolidated Statements of Shareholders' Equity -
Six Months Ended June 30, 1996 and 1995................. 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995................. 5
Notes to Consolidated Financial Statements................ 7
Review by Independent Certified Public
Accountants............................................. 10
Independent Auditors' Report.............................. 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 12
Part II. Other Information:
Item 1. Legal Proceedings................................. 25
Item 6. Exhibits and Reports on Form 8-K.................. 25
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)
June 30, December 31,
1996 1995
------------- -------------
ASSETS:
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost
$17,205,532 in 1996 and
$17,104,743 in 1995) $ 19,159,359 $ 19,675,006
Equity securities (cost $82,633 in
1996 and $80,912 in 1995) 121,847 108,062
Mortgage loans on real estate 19,164 22,213
Other long-term investments 2,996 3,343
Short-term investments 490,701 232,201
------------ ------------
Total investments 19,794,067 20,040,825
Cash 3,695 4,139
Receivables, primarily premiums 226,391 320,543
Receivables for security transactions 19,889 568
Accrued investment income 269,091 256,659
Deferred policy acquisition costs 2,558,524 2,565,027
Property and equipment, net 516,576 552,061
Securities held as collateral for
loaned securities 1,068,551 1,378,197
Intangible assets, net 101,239 104,546
Other 112,856 115,421
------------ ------------
Total assets $ 24,670,879 $ 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)
June 30, December 31,
1996 1995
------------ -------------
Liabilities and Shareholders' Equity:
Liabilities:
Policy liabilities:
Future policy benefits $ 17,881,500 $ 18,000,296
Unpaid policy claims 1,041,412 1,016,295
Unearned premiums 289,060 301,452
Other policyholders' funds 196,150 316,938
------------ ------------
Total policy liabilities 19,408,122 19,634,981
Notes payable 412,997 327,268
Income taxes, primarily deferred 1,264,127 1,397,709
Payables for return of collateral on
loaned securities 1,068,551 1,378,197
Payables for security transactions 72,896 80,014
Other 416,900 385,676
------------ ------------
Total liabilities 22,643,593 23,203,845
------------ ------------
Shareholders' equity:
Common stock of $.10 par value. Authorized
175,000; issued 156,826 in 1996 and
156,358 in 1995 15,683 15,636
Additional paid-in capital 203,211 196,928
Unrealized foreign currency
translation gains 221,298 213,319
Unrealized gains on securities
available for sale 274,140 482,787
Retained earnings 1,723,503 1,577,605
Treasury stock (409,963) (351,117)
Notes receivable for stock purchases (586) (1,017)
------------ ------------
Total shareholders' equity 2,027,286 2,134,141
------------ ------------
Total liabilities and shareholders' equity $ 24,670,879 $ 25,337,986
============ ============
Shareholders' equity per share $ 14.42 $ 15.03
============ ============
Shares outstanding at end of period 140,605 141,974
============ ============
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 June 30, Six Months Ended June 30,
per-share amounts - Unaudited) --------------------------- ---------------------------
1996 1995 1996 1995
Revenues: ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Premiums, principally supplemental
health insurance $ 1,461,484 $ 1,634,094 $ 2,917,847 $ 3,085,866
Net investment income 252,885 274,010 504,284 513,043
Realized investment gains (losses) 214 (435) (429) 149
Other income 27,074 25,102 49,875 47,389
----------- ----------- ----------- -----------
Total revenues 1,741,657 1,932,771 3,471,577 3,646,447
----------- ----------- ----------- -----------
Benefits and expenses:
Benefits and claims 1,208,051 1,355,114 2,417,060 2,560,060
Acquisition and operating expenses:
Amortization of deferred policy
acquisition costs 41,348 44,492 82,564 82,833
Insurance commissions 191,819 214,832 383,789 407,274
Insurance expenses 108,734 115,197 210,685 211,948
Interest expense 3,953 4,419 9,039 8,010
Other operating expenses 43,510 38,792 77,015 70,456
----------- ----------- ----------- -----------
Total acquisition and
operating expenses 389,364 417,732 763,092 780,521
----------- ----------- ----------- -----------
Total benefits and expenses 1,597,415 1,772,846 3,180,152 3,340,581
----------- ----------- ----------- -----------
Earnings before income taxes 144,242 159,925 291,425 305,866
Income taxes 58,495 67,009 119,155 128,077
----------- ----------- ----------- -----------
Net earnings $ 85,747 $ 92,916 $ 172,270 $ 177,789
=========== =========== =========== ===========
Net earnings per share $ .59 $ .61 $ 1.18 $ 1.17
=========== =========== =========== ===========
Shares used in computing earnings per share 144,879 151,711 145,623 152,284
=========== =========== =========== ===========
Cash dividends per share $ .10 $ .087 $ .187 $ .164
=========== =========== =========== ===========
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)
Six Months Ended June 30,
1996 1995
Common stock: -------------------------
Balance at beginning of year $ 15,636 $ 15,600
Exercise of stock options 47 26
--------- ---------
Balance at end of period 15,683 15,626
--------- ---------
Additional paid-in capital:
Balance at beginning of year 196,928 192,899
Exercise of stock options 3,617 1,930
Gain on treasury stock reissued 2,749 710
Cash in lieu of fractional shares (83) -
--------- ---------
Balance at end of period 203,211 195,539
--------- ---------
Unrealized foreign currency translation gains:
Balance at beginning of year 213,319 174,091
Change in unrealized translation gains 7,979 51,793
--------- ---------
Balance at end of period 221,298 225,884
--------- ---------
Unrealized gains (losses) on securities
available for sale:
Balance at beginning of year 482,787 228,844
Change in unrealized gains and losses (208,647) 309,449
--------- ---------
Balance at end of period 274,140 538,293
--------- ---------
Retained earnings:
Balance at beginning of year 1,577,605 1,277,487
Net earnings 172,270 177,789
Cash dividends on common stock
($.187 per share in 1996, $.164 per
share in 1995) (26,372) (24,260)
--------- ---------
Balance at end of period 1,723,503 1,431,016
--------- ---------
Treasury stock:
Balance at beginning of year (351,117) (135,776)
Purchases of treasury stock (2,356 shares
in 1996 and 3,426 shares in 1995) (71,810) (91,692)
Shares issued to sales associates stock bonus
plan and dividend reinvestment plan 12,964 3,684
--------- ---------
Balance at end of period (409,963) (223,784)
--------- ---------
Notes receivable for stock purchases (586) (1,180)
--------- ---------
Total shareholders' equity $2,027,286 $2,181,394
========= =========
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)
Six Months Ended
June 30,
-----------------------------
1996 1995
------------ ------------
Cash flows from operating activities:
Net earnings $ 172,270 $ 177,789
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Increase in policy liabilities 1,209,231 1,259,901
Deferred income taxes 37,748 35,271
Decrease in income taxes payable (48,612) (44,623)
Increase in deferred policy
acquisition costs (119,442) (131,115)
Increase in receivables and
advance premiums (41,643) (6,536)
Other, net 56,737 90,179
----------- -----------
Net cash provided by operating
activities 1,266,289 1,380,866
----------- -----------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed-maturity securities sold 547,855 353,379
Fixed-maturity securities matured
or called 416,808 356,788
Equity securities 7,695 9,146
Mortgage loans, net 2,814 2,364
Other long-term investments, net 347 170
Costs of investments acquired:
Fixed-maturity securities (1,982,971) (1,980,425)
Equity securities (9,337) (10,394)
Short-term investments, net (270,561) (77,857)
Additions to property and equipment, net (5,126) (10,429)
----------- -----------
Net cash used by investing activities (1,292,476) (1,357,258)
----------- -----------
(continued)
5
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands - Unaudited)
Six Months Ended
June 30,
-----------------------------
1996 1995
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 125,918 87,000
Principal payments under debt obligations (19,863) (11,315)
Dividends paid to shareholders (26,372) (24,260)
Purchases of treasury stock (71,810) (91,692)
Treasury stock reissued 15,713 4,394
Other, net 3,581 1,956
----------- -----------
Net cash provided (used) by
financing activities 27,167 (33,917)
----------- -----------
Effect of exchange rate changes on cash (1,424) 4,333
----------- -----------
Net change in cash (444) (5,976)
Cash at beginning of year 4,139 17,643
----------- -----------
Cash at end of period $ 3,695 $ 11,667
=========== ===========
Supplemental disclosures of cash flow information:
Cash payments during the year for:
Interest on debt obligations $ 7,491 $ 6,962
Income taxes 130,042 80,275
Non-cash financing activities included capital lease obligations incurred
for computer equipment totaling $874 in 1996 and $2,166 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 June 30,
1996, and the results of operations for the three-month and six-month
periods ended June 30, 1996 and 1995, and changes in shareholders' equity
and cash flows for the six months ended June 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.
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, effective January 1, 1996. This statement
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.
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. 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 No. 25 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 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
7
<PAGE>
Extinguishments of Liabilities, in June 1996. This statement establishes
standards regarding which transfers should be considered as sales of all or
part of the assets or as secured borrowings. It also establishes how
transferors and transferees should account for sales and secured borrowings
and extinguishment of liabilities. The Company is evaluating this new
accounting standard. This statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996.
2. The Company has a loan agreement which provides for bank borrowings up
to $500 million in either U.S. dollars or Japanese yen. During the first
quarter of 1996, the Company borrowed an additional 13.1 billion yen ($125.9
million) under this agreement. At June 30, 1996, borrowings of 37.0 billion
yen ($337.9 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 June 30, 1996, the
floating rate, based on the six-month Tokyo Interbank Offered Rate (TIBOR)
plus 25 basis points, was 1.04%.
In the second quarter, 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 June 30,
1996, bank borrowings of 3.1 billion yen ($28.6 million) were outstanding
under this agreement at a floating interest rate of .87%.
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.
3. 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.
8
<PAGE>
The effect on shareholders' equity at the following dates was:
(In thousands) June 30, 1996 December 31, 1995
---------------- -----------------
Securities available
for sale -
unrealized gains $ 1,993,041 $ 2,597,413
Less:
Policy liabilities 1,521,373 1,865,077
Deferred income
taxes 197,528 249,549
------------- -------------
Shareholders' equity,
net unrealized gains
on securities
available for sale $ 274,140 $ 482,787
============= =============
4. AFLAC Japan uses short-term (usually seven days) security lending
arrangements to increase investment income with minimal risk. At June 30,
1996 and December 31, 1995, the Company held Japanese government bonds as
collateral for loaned securities in the amount of $1.1 billion and $1.4
billion, respectively, at market value. 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.
5. 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 the
outcome of pending litigation will not have a material adverse effect on the
financial position of the Company.
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.
9
<PAGE>
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The June 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 11.
10
<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 Stockholders and Board of Directors
AFLAC Incorporated:
We have reviewed the accompanying consolidated balance sheet of AFLAC
Incorporated and subsidiaries as of June 30, 1996, and the related
consolidated statements of earnings for the three-month and six-month
periods ended June 30, 1996 and 1995, and the consolidated statements of
cash flows and shareholders' equity for the six-month periods ended June 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
July 23, 1996
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The primary business activity of AFLAC Incorporated and subsidiaries
(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.
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.
12
<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.
<CAPTION>
SUMMARY OF OPERATING RESULTS BY BUSINESS COMPONENT
(In millions, except for per-share amounts)
Three Months Ended June 30, Six Months Ended June 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..................... (13.0)% $132.2 $152.0 (7.2)% $265.3 $285.8
AFLAC U.S....................... 18.4 30.7 25.9 18.5 60.7 51.2
------ ------ ------ ------
Total U.S. and Japan
insurance................... (8.4) 162.9 177.9 (3.3) 326.0 337.0
Realized investment
gains (losses).................... .2 (.4) (.4) .1
Broadcast division.................. 12.2 7.3 6.5 11.6 11.7 10.5
Interest expense,
noninsurance operations........... (3.1) (3.3) (7.2) (5.9)
Corporate expenses, other
operations and eliminations....... (11.3) (23.1) (20.8) (7.5) (38.7) (35.8)
------ ------ ------ ------
Earnings before income taxes...... (9.8) 144.2 159.9 (4.7) 291.4 305.9
Income taxes.......................... (12.7) 58.5 67.0 (7.0) 119.1 128.1
------ ------ ------ ------
Net earnings...................... (7.7) $ 85.7 $ 92.9 (3.1) $ 172.3 $ 177.8
====== ====== ====== ======
Net earnings per share................ (3.3) $ .59 $ .61 .9 $ 1.18 $ 1.17
====== ====== ====== ======
- --------------------------------------------------------------------------------------------------------------------------
==========================================================================================================================
13
</TABLE>
<PAGE>
As in the first quarter, AFLAC's financial results as reported in
dollars were depressed due to the weakening of the yen. However, the
Company's performance during the second 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
16.4% for both the second quarter and the first six months of 1996 compared
with the respective periods in 1995. Those results exceeded the Company's
primary corporate objective of 13% to 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 $.12 per share during the second quarter and
$.17 per share for the first six 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 Six Months Ended
June 30, 1996 June 30, 1996
--------------------- ---------------------
Adjusted to Adjusted to
Exclude Exclude
Foreign Foreign
As Currency As Currency
Reported Changes* Reported Changes*
-------- ----------- -------- -----------
Premium income (10.6)% 9.2% (5.4)% 8.9%
Net investment income (7.7) 11.4 (1.7) 12.3
Total revenues (9.9) 9.5 (4.8) 9.3
Total benefits and expenses (9.9) 9.6 (4.8) 9.4
Operating earnings (7.7) 11.1 (2.7) 10.9
Operating earnings per share (3.3) 16.4 1.7 16.4
- ----------------------------------------------------------------------------
*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.
============================================================================
The yen began to weaken in relation to the dollar in the third quarter
of 1995, and management 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 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.
14
<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 9.8% for the three months ended June 30,
1996, compared with the second quarter of 1995 and increased 9.6% for the
six months ended June 30, 1996, compared with the six months ended June 30,
1995. The reported U.S. dollar results for AFLAC Japan were negatively
affected by the unfavorable average yen-to-dollar exchange rate of 106.75
for the six months ended June 30, 1996, compared with 90.39 for the first
six months of 1995. As a result, the percentage change in U.S. dollars for
AFLAC Japan's pretax operating earnings was a decrease of 13.0% for the
three months ended June 30, 1996, compared with the second quarter of 1995
and a decrease of 7.2% for the six months ended June 30, 1996, compared with
the six months ended June 30, 1995.
During the second quarter, AFLAC purchased 2.1 million shares of its
common stock. At the end of June 1996, the Company had approximately 4.6
million shares available for purchase under the board of directors' current
authorization. The Company has purchased 16.7 million shares (through June
30, 1996) since the inception of the share repurchase program in February
1994. The difference in percentage changes in net earnings and net earnings
per share primarily reflects the impact of the share repurchase program.
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, 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 $5.2 million and $2.4 million
for the three months ended June 30, 1996 and 1995, respectively and $10.2
million and $5.0 million for the six months ended June 30, 1996 and 1995,
respectively.
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 the Parent Company in the amount of $36.2
million. Repatriated profits represent a portion of the net earnings as
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 may fall between the amounts transferred in 1995 and 1996.
15
<PAGE>
The Company had approximately $76.9 million in short-term forward
foreign exchange contracts outstanding related to the profit transfer in
1996. These contracts were in a net gain position which is recorded in the
unrealized foreign exchange gain component of shareholders' equity at June
30, 1996. These contracts closed in July, coinciding with the transfer of
the funds.
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 periods. The AFLAC
Japan summary of operations tables on the following pages present 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 1995.
16
<PAGE>
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
THREE MONTHS ENDED JUNE 30,
In Dollars
(In millions) 1996 1995
--------------------------
Premium income...................... $ 1,225.4 $ 1,418.2
Investment income, as adjusted*..... 227.9 254.1
Other income........................ .1 .5
--------- ---------
Total revenues, as adjusted*...... 1,453.4 1,672.8
--------- ---------
Benefits and claims................. 1,058.8 1,220.2
Operating expenses.................. 257.2 295.7
--------- ---------
Total benefits and expenses....... 1,316.0 1,515.9
--------- ---------
Pretax operating earnings,
as adjusted*................... 137.4 156.9
Investment income applicable to
profit repatriations............... (5.2) (4.9)
--------- ---------
Pretax operating earnings....... $ 132.2 $ 152.0
========= =========
- ---------------------------------------------------------------------------
In Dollars In Yen
1996 1995 1996 1995
---------------- ----------------
Percentage changes
over previous period:
Premium income.............. (13.6)% 34.5% 9.2% 10.7%
Investment income*.......... (10.3) 37.1 13.1 13.0
Total revenues*............. (13.1) 34.9 9.7 11.0
Pretax operating earnings*.. (12.4) 32.3 10.5 9.0
Pretax operating earnings... (13.0) 30.6 9.8 7.6
- ---------------------------------------------------------------------------
1996 1995
------------------
Ratios to total revenues, as adjusted:*
Benefits and claims................ 72.8% 72.9%
Operating expenses................. 17.7 17.7
Pretax operating earnings.......... 9.5 9.4
Ratio of pretax operating earnings
to total reported revenues......... 9.1 9.1
- ----------------------------------------------------------------------------
*Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income of $5.2 million in 1996
and $4.9 million in 1995, foregone due to profit repatriations.
============================================================================
17
<PAGE>
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
SIX MONTHS ENDED JUNE 30,
In Dollars
(In millions) 1996 1995
--------------------------
Premium income...................... $ 2,449.5 $ 2,656.1
Investment income, as adjusted*..... 454.9 473.6
Other income........................ .5 1.7
--------- ---------
Total revenues, as adjusted*...... 2,904.9 3,131.4
--------- ---------
Benefits and claims................. 2,123.3 2,291.9
Operating expenses.................. 505.9 544.5
--------- ---------
Total benefits and expenses....... 2,629.2 2,836.4
--------- ---------
Pretax operating earnings,
as adjusted*................... 275.7 295.0
Investment income applicable to
profit repatriations............... (10.4) (9.2)
--------- ---------
Pretax operating earnings....... $ 265.3 $ 285.8
========= =========
- ---------------------------------------------------------------------------
In Dollars In Yen
1996 1995 1996 1995
---------------- ----------------
Percentage changes
over previous period:
Premium income.............. (7.8)% 30.5% 8.9% 11.7%
Investment income*.......... (3.9) 31.6 13.4 12.8
Total revenues*............. (7.2) 30.6 9.5 11.9
Pretax operating earnings*.. (6.5) 27.6 10.3 9.4
Pretax operating earnings... (7.2) 26.0 9.6 8.0
- ---------------------------------------------------------------------------
1996 1995
------------------
Ratios to total revenues, as adjusted:*
Benefits and claims................ 73.1% 73.2%
Operating expenses................. 17.4 17.4
Pretax operating earnings.......... 9.5 9.4
Ratio of pretax operating earnings
to total reported revenues......... 9.2 9.2
- ----------------------------------------------------------------------------
*Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income of $10.4 million in 1996
and $9.2 million in 1995, foregone due to profit repatriations.
============================================================================
As previously mentioned, the yen continued to weaken against the dollar
in the second quarter. The average exchange rate for the first six
months of 1996 was 106.75, which was 15.3% weaker than the average rate of
18
<PAGE>
90.39 for the first six 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. For the second quarter, new
annualized premium sales rose 15.6%, to 19.7 billion yen. For the six
months, new annualized premium sales in yen were up 7.7%, to 37.2 billion
yen. These results have benefited not only from the Company's broadened
product line, but also from a television advertising campaign that was
initiated earlier in the year. The Company remains very optimistic about
sales of its new and traditional products. Management's goal is to increase
new sales, excluding conversions, by 10% in yen for the year 1996.
The Company's new living benefit life product continued to make
significant contributions to AFLAC Japan's new sales. This new product,
which is being sold primarily as a rider to the cancer policies, accounted
for more than 40% of new annualized premium sales during the quarter and
nearly 44% of new sales for the first half of the year. The living benefit
life rider is extremely popular among consumers and agents alike, and
management expects its success to continue.
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 by approximately 12-14% on all new
policy issues beginning in the fourth quarter of 1996.
For several years, finding attractive investment yields for the
Company's substantial cash flows in Japan has been management's greatest
challenge. The yield to maturity on AFLAC Japan's fixed-maturity portfolio
was 5.73% at the end of the second quarter, compared with 6.00% a year ago,
reflecting the cumulative effect of low yields. However, new money yields
have improved this year over the mid-year 1995 levels. During the second
quarter, the Company purchased yen-denominated securities at an average
yield to maturity of 4.10%. Including dollar-denominated purchases, the
blended yield to maturity was 4.24%. The return on average invested assets
was 5.59% for the first six months, compared with 5.87% for the first six
months of 1995 and 5.81% for the full year 1995. As a result of the
improvement in yields and favorable changes in Japan's investment
regulations, AFLAC's investment results have exceeded management's
expectations this year. In looking forward, management is optimistic about
the possibility of higher interest rates, and therefore improved investment
returns, as Japan's economic recovery continues.
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
$14.8 million in the first six months of 1996, and $21.2 million, $51.9
million and $10.1 million for the full years 1995, 1994 and 1993,
19
<PAGE>
respectively. Estimated investment income earned from profits repatriated
to and retained by AFLAC U.S. from 1992 through 1995 has been reclassified
in the following presentation in order to improve comparability between
periods.
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 1996 1995 1996 1995
------------------ ------------------
Premium income................... $ 232.9 $ 211.8 $ 462.0 $ 421.5
Investment income, as adjusted*.. 21.2 19.4 42.3 38.0
Other income..................... .3 .2 .6 .6
------ ------ ------ ------
Total revenues, as adjusted*... 254.4 231.4 504.9 460.1
------ ------ ------ ------
Benefits and claims.............. 146.6 131.9 288.4 261.9
Operating expenses............... 83.8 77.7 169.2 155.2
------ ------ ------ ------
Total benefits and expenses.... 230.4 209.6 457.6 417.1
------ ------ ------ ------
Pretax operating earnings,
as adjusted*................ 24.0 21.8 47.3 43.0
Investment income applicable to
profit repatriations............ 6.7 4.1 13.4 8.2
------ ------ ------ ------
Pretax operating earnings.... $ 30.7 $ 25.9 $ 60.7 $ 51.2
====== ====== ====== ======
- ---------------------------------------------------------------------------
Percentage increases
over previous period:
Premium income................. 9.9% 7.9% 9.6% 8.3%
Investment income*............. 9.2 14.4 11.1 14.0
Total revenues*................ 9.9 7.8 9.8 8.4
Pretax operating earnings*..... 10.0 12.9 10.0 14.7
Pretax operating earnings...... 18.4 20.1 18.5 21.9
- ---------------------------------------------------------------------------
Ratios to total revenues,
as adjusted:*
Benefits and claims............ 57.6% 57.0% 57.1% 56.9%
Operating expenses............. 33.0 33.6 33.5 33.7
Pretax operating earnings...... 9.4 9.4 9.4 9.4
Ratio of pretax operating earnings
to total reported revenues...... 11.7 11.0 11.7 10.9
- ----------------------------------------------------------------------------
*Excludes estimated investment income for the three months ended June 30,
1996 and 1995 of $6.7 million and $4.1 million, respectively, and for the
six months ended June 30, 1996 and 1995 of $13.4 million and $8.2 million,
respectively, related to investment of profit repatriation funds retained by
AFLAC U.S.
============================================================================
20
<PAGE>
The increase in premium income primarily resulted from strong increases
in new sales during the last 12 months. Total new annualized premium sales
were very strong in the second quarter. Except for the first quarter of
this year, the second quarter sales were the best in the Company's history.
Total new sales in the second quarter rose 16.3% to $75.8 million. For the
first six months, new annualized premium sales increased 15.9% to $153.7
million. As in the last two years, accident/disability coverage has
continued to be the Company's best-selling product. At the same time, the
Company has produced strong sales growth in its traditional products.
Management remains focused on providing quality supplemental insurance
products to the payroll deduction market in the United States, and believes
there are tremendous market opportunities for strong new sales growth in the
future. Management's goal is to increase new policy sales by 12% to 15% for
the year.
The increase in investment income was primarily due to the increase in
invested assets. During the second quarter, available cash flow was
invested at an average yield-to-maturity of 7.71% compared with 7.67% during
the second quarter of 1995. The overall return on average invested assets,
net of investment expenses, was 7.36% for the first six months of 1996
compared with 7.38% 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 $10.0 million and $7.5 million for the six months ended June 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 June 30, 1996, was 109.50 yen to one U.S.
dollar, 6.0% weaker than the exchange rate of 102.95 as of December 31,
1995. Management estimates that the weaker yen rate decreased invested
21
<PAGE>
assets by $1.1 billion, total assets by $1.3 billion, and total liabilities
by $1.3 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 $2.0 billion on investments in fixed-maturity
securities at June 30, 1996, consisted of $2.0 billion in gross unrealized
gains and $79.3 million in gross unrealized losses. During 1996, net
unrealized gains decreased by $616.4 million, which was primarily due to the
rise in general-market interest rates in Japan and the United States.
The following table shows the effect of unrealized gains and losses on
invested assets at:
(In thousands) June 30, December 31, % Change
1996 1995
----------- ------------ ----------
AFLAC U.S.:
Total invested assets $ 1,662,623 $ 1,672,246 (.6)%
Unrealized gains/(losses)
on securities available
for sale 47,770 128,697
---------- ----------
Total invested assets
excluding unrealized
gains on securities
available for sale $ 1,614,853 $ 1,543,549 4.6
========== ==========
AFLAC Japan:
Total invested assets $18,078,811 $18,392,101 (1.7)
Unrealized gains/(losses)
on securities available
for sale 1,944,781 2,468,018
---------- ----------
Total invested assets
excluding unrealized
gains on securities
available for sale $16,134,030 $15,924,083 1.3
========== ==========
Consolidated:
Total invested assets $19,797,762 $20,044,964 (1.2)
Unrealized gains/(losses)
on securities available
for sale 1,993,041 2,597,413
---------- ----------
Total invested assets
excluding unrealized
gains on securities
available for sale $17,804,721 $17,447,551 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.
22
<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.
June 30, 1996 December 31, 1995
------------- -----------------
AAA 49.0% 49.2%
AA 20.9 22.2
A 25.0 24.6
BBB 5.1 4.0
----- -----
100.0% 100.0%
Private placement investments comprised 25.3% and 23.1% of the
Company's total fixed-maturity securities available for sale as of June 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 decreased $226.9 million, or 1.2%, during the first
six months of 1996. AFLAC Japan decreased $311.9 million, or 1.7% (4.5%
increase in yen), and AFLAC U.S. increased $81.6 million, or 5.4%. The
weaker yen rate decreased reported policy liabilities by $1.1 billion.
Offsetting increases in policy liabilities are due to the addition of new
business and the aging of policies in force. The effect of SFAS No. 115
also caused a decrease in policy liabilities (see Note 3).
The income tax liability decreased by $133.6 million, or 9.6%, since
December 31, 1995. The decrease is primarily due to a tax payment in Japan
during the first quarter 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 19.1% and 16.5% as of June 30, 1996 and December 31,
1995, respectively. For further information concerning notes payable, see
Note 2 of the Notes to the Consolidated Financial Statements. For
information concerning security lending arrangements, see Note 4 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
costs and therefore are not subject to the increasing risks of medical cost
inflation.
23
<PAGE>
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.
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 $17.5 million and $18.1 million in the first six months of 1996 and
1995, respectively, and $179.5 million in the full year 1995. In July 1996,
AFLAC Japan repatriated profits to AFLAC U.S. in the amount of $217.3 million.
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 5 of the
accompanying Notes to the Consolidated Financial Statements.
The board of directors has declared a third quarter cash dividend of
$.10 per share. The dividend is payable on September 3, 1996, to
shareholders of record at the close of business on August 16, 1996.
24
<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 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:
3.0 - ByLaws of the Company, as amended.
27.0 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
June 30, 1996.
25
<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: August 6, 1996 /s/ KRISS CLONINGER, III
------------------------ ---------------------------------
KRISS CLONINGER, III
Executive Vice President;
Treasurer and
Chief Financial Officer
Date: August 6, 1996 /s/ NORMAN P. FOSTER
------------------------ ---------------------------------
NORMAN P. FOSTER
Executive Vice President,
Corporate Finance
26
EXHIBITS FILED WITH CURRENT FORM 10-Q:
3.0 - ByLaws of the Company, as amended.
27.0 - Financial Data Schedule (for SEC use only)
27
<PAGE>
BYLAWS
OF
AMERICAN FAMILY CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be in the
State of Georgia, County of Muscogee.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Georgia as the Board of
Directors may from time to time determine and the business of the Corporation
may require or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
the Corporation shall be held at the principal office of the Corporation or at
such other place in the United States as may be determined by the Board of
Directors, on the fourth Monday in April of each calendar year (or on the
next succeeding business day if said fourth Monday in April is a legal
holiday in any year) or at such other time and date as shall be determined by
the Board of Directors, for the purpose of electing directors and transacting
such other business as may properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders shall
be held at the principal office of the Corporation or at such other place in the
United States as may be designated in the notice of said meetings, upon call of
the Chairman of the Board of Directors or the Chief Executive Officer and shall
be called by the President or the Secretary when so directed by the Board of
Directors or at the request in writing of the holders of shares representing all
of the votes entitled to be cast by the holders of all the issued and
outstanding capital stock of the Corporation entitled to vote thereat. Any such
request shall state the purpose for which the meeting is to be called.
SECTION 3. NOTICE OF MEETINGS. Written notice of every meeting of
shareholders, stating the place, date and hour of the meeting, shall be given
personally or by mail to each shareholder of record entitled to vote at such
meeting not less than 10 nor more than 60 days before the date of the meeting.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail with first class postage thereon prepaid addressed to the
shareholder at his address as it appears on the Corporation' s record of
stockholders. Attendance of a shareholder at a meeting of shareholders shall
constitute a waiver of objection to: (a) lack of notice or defective notice of
such meeting unless the shareholder at the beginning of the meeting, objects to
holding the meeting or transacting business at the meeting, and (b)
consideration of a particular matter at the meeting which is not within the
purpose or purposes described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented. Notice need not be
given to any shareholder who signs a waiver of notice, in person or by proxy,
either before or after the meeting.
SECTION 4. QUORUM. The holders of shares representing a majority of the
votes entitled to be cast by the holders of all the issued and outstanding stock
of the Corporation entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
<PAGE>
of the shareholders except as otherwise provided by statute, by the Articles of
Incorporation, or by these Bylaws. If a quorum is not present or represented at
any meeting of the shareholders, the holders of shares representing a majority
of the votes entitled to be cast by those present in person or represented by
proxy may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
SECTION 5. VOTING. When a quorum is present at any meeting, the vote of
the holders of stock representing a majority of the voting power, as defined in
the Articles of Incorporation, present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which by express provision of law or of the Articles of Incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of the question. Each shareholder shall at every
meeting of the shareholders be entitled to vote, as defined, in person or by
proxy for each share of the capital stock having voting power registered in his
name on the books of the Corporation, but no proxy shall be voted or acted upon
after 11 months from its date, unless otherwise provided in the proxy.
SECTION 6. CONSENT OF SHAREHOLDERS. Any action required or permitted to
be taken at any meeting of the shareholders may be taken without a meeting if
all of the shareholders entitled to vote on the action consent thereto in
writing, setting forth the action so taken, and signing and delivering such
consent to the Secretary of the Corporation. Such consent shall have the same
force and effect as a unanimous vote of shareholders.
SECTION 7. LIST OF SHAREHOLDERS. The Corporation shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving their names
and addresses and the number, class and series, if any, of the shares held by
each. The officer who has charge of the stock transfer books of the Corporation
shall prepare and make, before every meeting of shareholders or any adjournment
thereof, a complete list of the shareholders entitled to vote at the meeting or
any adjournment thereof, arranged in alphabetical order, with the address of and
the number and class and series, if any, of shares held by each. The list shall
be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the whole time of the meeting
for the purposes thereof. The said list may be the Corporation's regular record
of shareholders if it is arranged in alphabetical order or contains an
alphabetical index and otherwise conforms with the requirements specified by
law.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The property, affairs and business of the Corporation
shall be managed and directed by its Board of Directors, which may exercise all
powers of the Corporation and do all lawful acts and things which are not by
law, by the Articles of Incorporation or by these Bylaws directed or required to
be exercised or done by the shareholders.
<PAGE>
SECTION 2. NUMBER, ELECTION AND TERM. The number of directors which shall
constitute the whole Board shall be not less than three (3) or more than twenty-
five (25). The specific number of directors within such range shall be fixed or
changed from time to time by a majority of the Board of Directors then in
office. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director. Except as otherwise provided in
these Bylaws, shareholders shall elect directors by a vote of not less than a
plurality of the votes present in person or represented by proxy at the meeting.
Each director elected shall hold office until his successor is elected and
qualified or until his earlier resignation, removal from office or death.
Directors shall be natural persons between the ages of 21 and 75 years,
inclusive, but need not be residents of the State of Georgia or shareholders of
the Corporation.
SECTION 3. RESIGNATION. Any director who shall miss three or more regular
meetings of the Board of Directors within any twelve month period, whether or
not the meetings missed are consecutive, shall be deemed to have automatically
resigned as a director, provided that the automatic resignation may be waived by
resolution adopted by a majority vote of the remaining directors with the
written consent of the resigned director, in which event said director shall
remain on the Board.
SECTION 4. VACANCIES. Vacancies, including vacancies resulting from any
increase in the number of directors, but not including vacancies resulting from
removal from office by the shareholders (except as provided in Section 9 of this
Article III), may be filled by the shareholders, by the Board of Directors, or
by the affirmative vote of a majority of the directors remaining in office,
though less than a quorum, or by a sole remaining director, and a director so
chosen shall hold office until the next annual election and until his successor
is duly elected and qualified unless sooner displaced. If there are no
directors in office, then vacancies shall be filled through election by the
shareholders.
SECTION 5. MEETINGS AND NOTICE. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Georgia. Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by
resolution of the Board. Special meetings of the Board may be called by the
Chairman of the Board or Chief Executive Officer or by any two directors on one
day's oral, telegraphic or written notice duly given or served on each director
personally, or three days' notice deposited, first class postage prepaid, in the
United Sates mail. Such notice shall state a reasonable time, date and place of
meeting, but the purpose need not be stated therein. Notice need not be given
to any director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting except when the director states, at the beginning of the meeting
(or promptly upon his arrival), any such objection or objections to holding the
meeting or the transaction of business at the meeting and does not subsequently
vote for or assent to action taken at the meeting.
SECTION 6. QUORUM. At all meetings of the Board a majority of directors
in office immediately before the meeting begins shall constitute a quorum for
the transaction of business, and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board, except
as may be otherwise specifically provided by law, by the Articles of
Incorporation, or by these Bylaws. If a quorum shall not be present at any
meeting of the Board, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
<PAGE>
SECTION 7. CONSENT OF DIRECTORS. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, setting forth the action so taken, and
the writing or writings are filed with the minutes of the proceedings of the
Board or committee. Such consent shall have the same force and effect as a
unanimous vote of the Board.
SECTION 8. COMMITTEES. The Board of Directors may by resolution passed by
a majority of the whole Board, designate from among its members one or more
committees, each committee to consist of one or more directors. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of such committee. Any such committee,
to the extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
except that it shall have no authority with respect to (1) amending the Articles
of Incorporation or these Bylaws; (2) adopting a plan of merger or
consolidation; (3) the sale, lease, exchange or the disposition of all or
substantially all the property and assets of the Corporation; and (4) a
voluntary dissolution of the Corporation or a revocation thereof. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. A majority of
each committee may determine its action and may fix the time and places of its
meetings, unless otherwise provided by the Board of Directors. Each Committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
SECTION 9. REMOVAL OF DIRECTORS. At any shareholders' meeting with
respect to which notice of such purpose has been given, any director may be
removed from office, with or without cause, by the vote of the holders of a
majority of the stock having voting power and entitled to vote for the election
of directors, and his successor may be elected at the same or any subsequent
meeting of shareholders, or by the Board as permitted by law.
SECTION 10. COMPENSATION OF DIRECTORS. Directors shall be entitled to
such reasonable compensation for their services as directors or members of any
committee of the Board as shall be fixed from time to time by resolution adopted
by the Board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending any meeting of the Board or any such committee.
SECTION 11. EXECUTIVE COMMITTEE. The Executive Committee will consist of
at least five directors, including the Chief Executive Officer, the Deputy Chief
Executive Officer, the Chairman of the Board of Directors, the Vice Chairman of
the Board of Directors, the President, and such number of other directors as the
Board of Directors may from time to time determine. The Executive Committee
shall have and may exercise, during the intervals between meetings of the Board
of Directors, all of the powers of the Board of Directors which may be lawfully
delegated. Meetings of the Executive Committee shall be held at such times and
places to be determined by the Chairman of the Executive Committee. At all
meetings of the Executive Committee, a majority of the members thereof shall
constitute a quorum. The Executive Committee may make rules for the conduct of
its business and may appoint such committees and assistants as it may deem
necessary. The Chief Executive Officer (or another member of the Executive
Committee chosen by him) shall be the Chairman of the Executive Committee.
During the intervals between meetings of the Executive Committee, the Chief
Executive Officer shall possess and may exercise such of the powers vested in
<PAGE>
the Executive Committee as from time to time may be lawfully conferred upon him
by resolution of the Board of Directors or the Executive Committee.
ARTICLE IV
OFFICERS
SECTION 1. NAME AND NUMBER. The officers of the Corporation, who shall be
chosen by the Board of Directors are as follows: Chief Executive Officer,
Deputy Chief Executive Officer, Chairman of the Board of Directors, Vice
Chairman of the Board of Directors, President, Executive Vice President,
Secretary, Assistant Secretary, Treasurer, and Assistant Treasurer. The Board
of Directors may appoint additional specially designated vice presidents,
assistant secretaries and assistant treasurers. Any number of offices, except
the offices of President and Secretary, may be held by the same person. The
Board of Directors may appoint such other officers and agents as it shall deem
necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board. The Board may, in its discretion, leave any of the above offices vacant
for any length of time.
SECTION 2. COMPENSATION. The salaries of all officers set forth in
Section 1 of this Article IV shall be fixed by the Board of Directors or a
committee or officer appointed by the Board. Salary payments made to an officer
of the Corporation that shall be disallowed in whole or in part as a deductible
expense by the Corporation for Federal Income Tax purposes shall be reimbursed
by such officer to the Corporation to the full extent of the disallowance. It
shall be the duty of the Board of Directors to enforce payments of each such
amount disallowed.
SECTION 3. TERM OF OFFICE. Unless otherwise provided by resolution of the
Board of Directors, the principal officers shall serve until their successors
shall have been chosen and qualified, or until their death, resignation or
removal as provided by these Bylaws.
SECTION 4. REMOVAL. Any officer may be removed from office at any time,
with or without cause, by the Board of Directors.
SECTION 5. VACANCIES. Any vacancy in an office resulting from any cause
may be filled by the Board of Directors.
SECTION 6. POWERS AND DUTIES. Except as hereinafter provided, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors to the extent consistent
with these Bylaws.
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall keep
the Board of Directors fully informed, and shall make a statement
of the affairs of the Corporation at the annual meeting of the
shareholders. He shall have the general superintendence and
direction of all the other officers of the Corporation and of the
agents, independent contractors and employees thereof and to see
that their respective duties are properly performed. He shall,
for and on behalf of the Corporation, exercise the voting powers
of all stock of other companies owned by the Corporation. He may
sign and execute all authorized bonds, notes, drafts, checks,
<PAGE>
acceptances or other obligations, reinsurance contracts and other
contracts in the name of the Corporation. He shall operate and
conduct the business and affairs of the corporation according to
the orders and resolutions of the Board of Directors, and
according to his own discretion whenever and wherever such
discretion is not expressly limited by such orders and
resolutions. He shall have the power to sue and be sued, complain
and defend, in all courts, and to participate and bind the
Corporation in any judicial, administrative, arbitrative,
settlement or other action, litigation or proceeding. All
officers may be removed with or without cause at any time by the
Chief Executive Officer whenever the Chief Executive Officer, in
his absolute discretion, shall consider that the best interests of
the Corporation will be served thereby.
(b) DEPUTY CHIEF EXECUTIVE OFFICER. In the absence of the Chief
Executive Officer, or in the event of his temporary disability or
inability to act, or in the event the Chief Executive Officer
expressly so directs, the Deputy Chief Executive Officer shall
perform the duties of Chief Executive Officer, and when so acting
shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. Upon the death,
permanent disability, or resignation of the Chief Executive
Officer, the Deputy Chief Executive Officer shall become Chief
Executive Officer and shall succeed to such duties and powers
subject to such restrictions. In the event the office of Vice
Chairman shall become vacant for any reason, the Deputy Chief
Executive Officer shall, in addition to his then current duties,
become Vice Chairman and shall succeed to the duties and powers of
such office. The Deputy Chief Executive Officer shall do and
perform such other duties as may from time to time be assigned to
him by the Board of Directors or by the Chief Executive Officer.
(C) CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
Directors shall preside at all meetings of the Directors and
shareholders and shall perform such other duties as may be
assigned by the Board of Directors.
(d) VICE CHAIRMAN OF THE BOARD OF DIRECTORS. In the absence of the
Chairman of the Board of Directors, or in the event of his
inability to act, the Vice Chairman of the Board of Directors
shall perform the duties of the Chairman of the Board of
Directors, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chairman of the Board of
Directors. Upon the death, permanent disability, or resignation
of the Chairman of the Board of Directors, the Vice Chairman shall
become the Chairman of the Board and shall succeed to such duties
and powers subject to such restrictions. The Vice Chairman of the
Board of Directors shall do and perform such other duties as may
from time to time be assigned to him by the Board of Directors or
by the Chairman of the Board.
(e) PRESIDENT. The President shall keep the Board of Directors fully
informed. He may sign and execute all authorized bonds,
contracts, notes, drafts, checks, acceptances or other obligations
in the name of the Corporation, and with the Secretary he may sign
all certificates of shares in the capital stock of the
Corporation. The President shall do and perform such other duties
<PAGE>
as may from time to time be assigned to him by the Board of
Directors or by the Chief Executive Officer.
(f) EXECUTIVE VICE-PRESIDENT. In the absence of the President or in
the event of his inability or refusal to act, the Executive Vice-
President (or in the event there be more than one Executive Vice-
President, the Executive Vice-Presidents in the order designated,
or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Executive Vice-Presidents
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
(g) SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the Shareholders and record all
the proceedings of the meetings of the Corporation and of the
Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. He
shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board
of Directors or Chief Executive Officer, under whose supervision
he shall be. He shall have custody of the corporate seal of the
Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and
when so affixed, it may be attested by his signature or by the
signature of such assistant secretary.
The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the
affixing by his signature.
(h) ASSISTANT SECRETARY. The Assistant Secretary, or if there be more
than one, the assistant secretaries in the order determined by the
Board of Directors (of if there be no such determination, then in
the order of their election), shall, in the absence of the
Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
(i) TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation
and shall deposit all monies and other valuable effects in the
name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and
shall render regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the
Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation,
<PAGE>
retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or
under his control belonging to the Corporation.
(j) ASSISTANT TREASURER. The Assistant Treasurer, or if there shall
be more than one, the assistant treasurers in the order determined
by the Board of Directors (or if there be no such determination,
then in the order of their election), shall, in the absence of the
Treasurer or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
(k) For purposes of this Section 6, "disability" shall mean the
significant impairment, resulting from any physical or mental
condition, of the Chief Executive Officer's ability to perform his
duties, for a period of six or more consecutive months.
SECTION 7. VOTING SECURITIES OF CORPORATION. Unless otherwise ordered by
the Board of Directors, the Chief Executive Officer shall have full power and
authority on behalf of the Corporation to attend and to act and vote at any
meetings of security holders of corporations in which the Corporation may hold
securities, and at such meetings shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
Corporation might have possessed and exercised if it had been present. The
Board of Directors by resolution from time to time may confer like powers upon
any other person or persons.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 1. FORM OF CERTIFICATE. Every holder of fully-paid stock in the
Corporation shall be entitled to have a certificate in such form as the Board of
Directors may from time to time prescribe.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by the
Corporation and alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 3. TRANSFERS.
(a) Transfers of shares of the capital stock of the Corporation shall
be made only on the books of the Corporation by the registered
holder thereof, or by his duly authorized attorney, or with a
transfer clerk or transfer agent appointed as in Section 5 of this
Article provided, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes thereon.
<PAGE>
(b) The Corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and for all other
purposes, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by law.
(c) Shares of capital stock may be transferred by delivery of the
certificates therefore, accompanied either by an assignment in
writing on the back of the certificates or by separate written
power of attorney to sell, assign and transfer the same, signed by
the record holder thereof, or by his duly authorized attorney in
fact but no transfer shall affect the right of the Corporation to
pay any dividend upon the stock to the holder of record as the
holder in fact thereof for all purposes, and no transfer shall be
valid, except between the parties thereto, until such transfer
shall have been made upon the books of the Corporation as herein
provided.
(d) The Board may, from time to time, make such additional rules and
regulations as it may deem expedient, not inconsistent with these
Bylaws or the Articles of Incorporation, concerning the issue,
transfer, and registration of certificates for shares of the
capital stock of the Corporation.
SECTION 4. RECORD DATE. In order that the Corporation may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to demand a special meeting, or to express consent
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the proposal of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 70 days and,. in case of a
meeting of shareholders, not less than 10 days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If no record date is fixed by the Board for the determination of shareholders
entitled to notice of and to vote at any meeting of shareholders, the record
date shall be at the close of business on the day next receding the day on which
the notice is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. If no record date is
fixed for other purposes, the record date shall be at the close of business on
the day next preceding the day on which the Board of Directors adopts the
resolution relating thereto. A determination of Shareholders of record entitled
to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting unless the Board of Directors shall fix a new record
date for the adjourned meeting, which it shall do if the meeting is adjourned to
a date more than 120 days after the date fixed for the original meeting.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents or one or more transfer clerks and one or
more registrars, and may require all certificates of stock to bear the signature
or signatures of any of them.
<PAGE>
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the Corporation's capital stock, subject to the provisions of the Articles of
Incorporation and applicable law. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 3. SEAL. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its organization and the words "Corporate Seal"
and "Georgia." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. In the event it is
inconvenient to use such a seal at any time, the signature of the Corporation
followed by the word "Seal" enclosed in parentheses shall be deemed the seal of
the Corporation.
SECTION 4. ANNUAL STATEMENTS. Not later than four months after the close
of each fiscal year, and in any case prior to the next annual meeting of
stockholders, the Corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of its fiscal year,
and
(b) A profit and loss statement showing the result of its operations
during its fiscal year.
Upon written request, the Corporation promptly shall mail to any
shareholder of record a copy of the most recent such balance sheet and profit
and loss statement.
SECTION 5. BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS. All of the
requirements and provisions of Article llA, Chapter 2, Title 14 of the Georgia
Business Corporation Code of the Official Code of Georgia Annotated, or as the
same may be amended or re-codified from time to time, shall apply to the
Corporation.
SECTION 6. SHAREHOLDERS' RIGHT TO INSPECT RECORDS. To the extent such
limitation is permitted by law, a shareholder owning two percent or less of the
outstanding shares of the Corporation shall have no right to inspect or copy
excerpts from minutes of any meeting of the Board of Directors, records of any
action of a committee of the Board of Directors while acting in place of the
Board of Directors on behalf of the Corporation, minutes of any meeting of the
shareholders, records of action taken by the shareholders or the Board of
Directors without a meeting, the accounting records of the Corporation, and the
record of shareholders.
<PAGE>
ARTICLE VII
INDEMNIFICATION OF DIRECTORS & OFFICERS
SECTION 1. INDEMNIFICATION. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including, but not limited to,
any action, suit or proceeding by or in the right of the Corporation), whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, advisory director, officer, employee or agent of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise, and shall advance
expenses to such person reasonably incurred in connection therewith, to the
fullest extent permitted by the relevant provisions of the Georgia Business
Corporation Code, as such law presently exists or hereafter may be amended.
SECTION 2. PURCHASE OF INSURANCE. The Board of Directors may authorize
the Corporation to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise against liability asserted
against him or incurred by him in any such capacity or arising out of his status
as such whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article VII or the Georgia
Business Corporation Code.
ARTICLE VIII
ADVISORY DIRECTORS
The Board of Directors of the Corporation may at its annual meeting, or
from time to time thereafter, appoint any individual to serve as a member of an
Advisory Board of Directors of the Corporation. Any individual appointed to
serve as a member of an Advisory Board of Directors of the Corporation shall be
permitted to attend all meetings of the Board of Directors and may participate
in any discussion thereat, but such individual may not vote at any meeting of
the Board of Directors or be counted in determining a quorum for such meeting.
It shall be the duty of members of the Advisory Board of Directors of the
Corporation to advise and provide general policy advice to the Board of
Directors of the Corporation at such times and places and in such groups and
committees as may be determined from time to time by the Board of Directors, but
such individual shall not have any responsibility or be subject to any liability
imposed upon a director or in any manner otherwise deemed a director. The
compensation paid to members of the Advisory Board of Directors shall be
determined from time to time by the Board of Directors of the Corporation. Each
member of the Advisory Board of Directors, except in the case of his earlier
death, resignation, retirement, disqualification or removal, shall serve until
the next succeeding annual meeting of the Board of Directors and thereafter
until his successor shall have been appointed.
ARTICLE IX
EMERITUS DIRECTORS
Any director of the Corporation who is not an officer or employee of the
Corporation and who has served as a director in such capacity for five or more
years and has attained fifty-five (55) years of age shall be eligible to be
appointed as a director emeritus upon his retirement or resignation. A director
<PAGE>
emeritus shall be entitled to serve for a term equal to said director's length
of service as a member of the Board of Directors. The director emeritus shall
have the right to attend and participate in discussions of the business of the
Corporation at regular and Special meetings of the Board of Directors but shall
not be entitled to vote on any matter. The director emeritus shall be a
goodwill ambassador on behalf of the Corporation and shall hold himself or
herself available at mutually convenient times for consultation with members of
the Board and senior management of the Corporation concerning the business and
affairs of the Corporation.
ARTICLE X
AMENDMENTS
The Board of Directors shall have power to amend or repeal the Bylaws or
adopt new Bylaws, but any Bylaws adopted by the Board of Directors may be
altered, amended or repealed, and new Bylaws adopted, by the shareholders. The
shareholders may prescribe that any Bylaw or Bylaws adopted by them shall not be
altered, amended or repealed by the Board of Directors. Action by the
shareholders with respect to Bylaws shall be taken by an affirmative vote of a
majority of the voting power of all shares entitled to elect directors, and
action by the directors with respect to Bylaws shall be taken by an affirmative
vote of a majority of all directors then holding office.
<PAGE>
EXHIBIT "C"
RESOLUTION OF THE BOARD
OF DIRECTORS OF
AMERICAN FAMILY CORPORATION
RESOLVED that the following amendments to the Bylaws of American Family
Corporation are hereby adopted:
ARTICLE VII
INDEMNIFICATION OF DIRECTORS & OFFICERS
SECTION 1. INDEMNIFICATION. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including, but not limited to,
any action, suit or proceeding by or in the right of the Corporation), whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director, advisory director, officer, employee or agent of the
Corporation or is or was acting at the request of the Corporation, or who was
serving as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, and shall advance
expenses to such person reasonably incurred in connection therewith, to the
fullest extent permitted by the relevant provisions of the Georgia Business
Corporation Code, as such law presently exists or hereafter may be amended.
Adopted April 4, 1990
<PAGE>
EXHIBIT "C"
RESOLUTION
RESOLVED, That the Board of Directors of American Corporation deems it
advisable and in the best interest of the Corporation for the name of the
Corporation to be changed to "AFLAC Incorporated"; and
RESOLVED FURTHER, That Article I of the Articles of Incorporation be,
effective January 1, 1992, amended to read in full as follows:
"I. The name of the corporation is AFLAC Incorporated"; and
RESOLVED FURTHER, That the appropriate officers of the Corporation be, and
each of them hereby is, authorized and directed to prepare, execute and file
with the Georgia Secretary of State Articles of Amendment to the Articles of
Incorporation and to take any and all other action necessary or appropriate to
effect such amendment; and
RESOLVED FURTHER, That the form of certificate for fully paid and
nonassessable shares of Common Stock of the Corporation presented to the Board
of Directors be, effective January 1, 1992, adopted as the certificate to
represent fully paid and non-assessable shares of common Stock of the
Corporation and that a specimen of such certificate be attached hereto as
EXHIBIT "A"; and
RESOLVED FURTHER, That outstanding certificates representing issued and
outstanding shares of common Stock of the Corporation shall continue to
represent shares of Common Stock of the Corporation; and
RESOLVED FURTHER, That the title of the Bylaws of the Corporation be,
effective January 1, 1992, amended to read as follows:
"Bylaws
of
AFLAC Incorporated";
and
RESOLVED FURTHER, That the proposed Corporate Seal, an impression of which
is affixed to this page in the margin opposite this resolution, be, effective
January 1, 1992, adopted as the Corporate Seal of the Corporation; and
RESOLVED FURTHER, That there is incorporated herein by reference, as fully
as though set forth at length herein, any resolutions of the Board of Directors
that may be required by any exchange upon which securities of the Corporation
are listed, by any banks, by any transfer agents or registrars or by any
government or regulatory authorities in connection with the change in corporate
name of the Corporation if, in the opinion of the proper officers of the
Company, the adoption of such resolutions is necessary or appropriate and that
such resolutions be, and they hereby are, deemed adopted IN HAEC VERBA with the
same force and effect as though set forth herein; and
RESOLVED FURTHER, That the appropriate officers of the Corporation be, and
each of them hereby is, authorized and directed to take or cause to be taken all
such other and further actions and to execute and deliver any and all
instruments, certificates, applications, consents and other documents and to
<PAGE>
incur all such fees and expenses as in their judgment shall be necessary,
appropriate or advisable in order to carry out fully the purpose and intent of
the foregoing resolutions; and
RESOLVED FURTHER, That all actions heretofore taken by any officer of the
Corporation in connection with the actions contemplated by the foregoing
resolutions be, and they hereby are, approved, ratified and confirmed in all
respects.
Adopted December 10, 1991
<PAGE>
EXHIBIT "E"
RESOLUTION
WHEREAS, The Board of Directors has deemed it appropriate to reduce the
retirement age for Directors for the first time on or after April 27, 1992, from
75 years of age to 70 years of age; and
WHEREAS, The Board of Directors has decided that the retirement age for
Directors first elected prior to April 27, 1992, shall remain at 75 years of
age;
NOW, THEREFORE, BE IT RESOLVED, That Article III of the Bylaws of the
Corporation be and hereby is amended by amending Section 2 thereof such that it
reads as follows:
"Section 2. Number, Election and Term. The number of Directors which
shall constitute the whole Board shall be not less than three (3) or
more than twenty-five (25). The specific number of Directors within
such range shall be fixed or changed from time to time by a majority
of the Board of Directors then in office. A decrease in the number of
Directors shall not have the effect of shortening the term of any
incumbent Director.
Except as otherwise provided in these Bylaws, shareholders shall elect
Directors by a vote of not less than a plurality of the votes present in
person or represented by proxy at the meeting. Each Director elected
shall hold office until his successor is elected and qualified or until
his earlier resignation, removal from office or death. Directors shall be
natural persons between the ages of 21 and 70 years, inclusive; provided,
however, that any Directors who were elected to the Board for the first
time before April 27, 1992, and who are subsequently re-elected shall be
natural persons between the ages of 21 and 75 years, inclusive. Directors
need not be residents of the State of Georgia or shareholders of the
Corporation."
Adopted 12/10/91
<PAGE>
EXHIBIT "E"
RESOLUTION
WHEREAS, management has recommended that the annual meeting of shareholders
be rescheduled to more closely coincide with the release of first quarter
earnings; and
WHEREAS, it has been suggested that the Bylaws be amended to reflect this
change in the annual meeting date, effective for the 1993 annual shareholders
meeting.
NOW THEREFORE, BE IT RESOLVED, that Article II, Section 1 of the AFLAC
Incorporated Bylaws be amended by striking said Section 1 in its entirety and
inserting the following:
"SECTION 1. Annual Meetings. The annual meeting of the shareholders of
the Corporation shall be held at the principal office of the Corporation or at
such other place in the United States as may be determined by the Board of
Directors, on the first Monday in May of each calendar year (or on the next
succeeding business day if said first Monday in May is a legal holiday in any
year) or at such other time and date as shall be determined by the Board of
Directors, for the purpose of electing directors and transacting such other
business as may properly be brought before the meeting."
Adopted November 10, 1992
<PAGE>
RESOLUTION
RE: AMEND BYLAWS
WHEREAS, the Board of Directors is authorized to amend and alter the
Corporation's Bylaws pursuant to Section 14-2-1020(a) of the Business
Corporation Code of the State of Georgia and Article X of the Corporation's
Bylaws; and
WHEREAS, the Board of Directors has determined that such amendment of the
Bylaws is in the best interest of the Corporation and its shareholders;
NOW, THEREFORE IT IS HEREBY:
RESOLVED, that Article II of the Corporation's Bylaws be and hereby is
amended and altered by redesignating Section 1 as Section 1(a) and adding the
following new Sections 1(b), (c), (d), (e) and (f):
"(b) No business may be transacted at an annual meeting of
shareholders, other than business that is either (i) specified in
the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized
committee thereof), (ii) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors
(or any duly authorized committee thereof) or (iii) otherwise
properly brought before the annual meeting by any shareholder of
the Corporation (A) who is a shareholder of record on the date of
the giving of the notice provided for in this Section 1 and on the
record date for the determination of shareholders entitled to vote
at such annual meeting and (B) who complies with the notice
procedures set forth in this Section 1.
"(c) In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder,
such shareholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation, which notice is
not withdrawn by such shareholder at or prior to such annual
meeting.
"(d) To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided,
however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such
anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs.
"(e) To be in proper written form, a shareholder's notice to the
Secretary must set forth as to each matter such shareholder
proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such
shareholder, (iii) the class and number of shares of capital stock
<PAGE>
of the Corporation which are owned beneficially or of record by
such shareholder, (iv) a description of all arrangements or
understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of
such business by such shareholder and any material interest of
such shareholder in such business and (v) a representation that
such shareholder intends to appear in person or by proxy at the
annual meeting to bring such business before the meeting.
"(f) No business shall be conducted at the annual meeting of
shareholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 1,
provided, however, that, once business has been properly brought
before the annual meeting in accordance with such procedures,
nothing in this Section 1 shall be deemed to preclude discussion
by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought
before the annual meeting in accordance with the foregoing
procedures, the Chairman shall declare to the meeting that the
business was not properly brought before the meeting and such
business shall not be transacted."
FURTHER RESOLVED, that Article III of the Corporation's Bylaws be and
hereby is amended and altered by redesignating Section 2 as Section 2(a) and
adding the following new Sections 2(b), (c), (d), (e) and (f):
"(b) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the
Corporation. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of shareholders (i) by
or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (ii) by any shareholder of the
Corporation (A) who is a shareholder of record on the date of the
giving of the notice provided for in this Section 2 and on the
record date for the determination of shareholders entitled to vote
at such annual meeting and (B) who complies with the notice
procedures set forth in this Section 2.
"(c) In addition to any other applicable requirements, for a nomination
to be made by a shareholder, such shareholder must have given
timely notice thereof in proper written form to the Secretary of
the Corporation.
"(d) To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided,
however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such
anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of
the date of the annual meeting was made, whichever first occurs.
"(e) To be in proper written form, a shareholder's notice to the
Secretary must set forth (i) as to each person whom the
<PAGE>
shareholder proposes to nominate for election as a director (A)
the name, age, business address and residence address of the
person, (B) the principal occupation or employment of the person,
(C) the number of shares of capital stock of the Corporation which
are owned beneficially or of record by the person and (D) any
other information relating to the person that would be required to
be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder; and (ii) as to the shareholder
giving the notice (A) the name and record address of such
shareholder, (B) the number of shares of capital stock of the
Corporation which are owned beneficially or of record by such
shareholder, (C) a description of all arrangements or
understandings between such shareholder and each proposed nominee
and any other person or persons (including their names) pursuant
to which the nomination(s) are to be made by such shareholder, (D)
a representation that such shareholder intends to appear in person
or by proxy at the meeting to nominate the persons named in its
notice and (E) any other information relating to such shareholder
that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations
of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder.
Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a
director if elected.
"(f) No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set
forth in this Section 2. If the Chairman of the annual meeting
determines that a nomination was not made in accordance with the
foregoing procedures, the Chairman shall declare to the meeting
that the nomination was defective and such defective nomination
shall be disregarded."
FURTHER RESOLVED, that the appropriate officers of the Corporation be, and
each of them hereby is, authorized to restate the Bylaws of the Corporation to
incorporate the amendments adopted hereby.
FURTHER RESOLVED, that the appropriate officers of the Corporation be, and
each of them hereby is, authorized, empowered and directed to attest to the
approval of the foregoing amendments, and to make such filings and execute and
deliver any agreement, document, certificate or other instrument which such
officer may deem necessary or desirable to carry out the purposes of these
resolutions, with such modification and amendments to such filings and such
certificates, agreements, instruments or other documents as they, in their
discretion, may deem necessary or desirable and in the best interest of the
Corporation, their taking any such action for and on behalf and in the name of
the Corporation, and/or their execution and delivery, for and on behalf and in
the name of the Corporation, of any such certificate, agreement, instrument or
document, incorporating any such notification or amendment, to be conclusive
evidence of approval thereof by the Board.
FURTHER RESOLVED, that the appropriate officers of the Corporation be, and
they hereby are, authorized, empowered and directed to pay all fees and expenses
incurred in connection with carrying out the purposes of these resolutions
<PAGE>
including, but not limited to, fees and expenses of legal counsel, as they, or
any of them, shall determined to be necessary or appropriate, such payment to be
conclusive evidence of approval thereof by the Board, and to perform all other
acts and do all other things as they, in their discretion, may deem necessary or
desirable and in the best interest of the Corporation in connection with the
foregoing resolutions.
FURTHER RESOLVED, that all acts and things heretofore done by any
appropriate officer, director or by any employee or agent of the Corporation, on
or prior to the date of these resolutions, in connection with the action
contemplated by these resolutions, be, and the same hereby are, in all respects
ratified, confirmed, approved and adopted as acts and deeds of the Corporation.
Adopted 4/8/96
<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 June 30, 1996, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 19,159,359
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 121,847
<MORTGAGE> 19,164
<REAL-ESTATE> 0
<TOTAL-INVEST> 19,794,067
<CASH> 3,695
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,558,524
<TOTAL-ASSETS> 24,670,879
<POLICY-LOSSES> 18,922,912
<UNEARNED-PREMIUMS> 289,060
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 196,150
<NOTES-PAYABLE> 412,997
0
0
<COMMON> 15,683
<OTHER-SE> 2,011,603
<TOTAL-LIABILITY-AND-EQUITY> 24,670,879
2,917,847
<INVESTMENT-INCOME> 504,284
<INVESTMENT-GAINS> (429)
<OTHER-INCOME> 49,875
<BENEFITS> 2,417,060
<UNDERWRITING-AMORTIZATION> 82,564
<UNDERWRITING-OTHER> 680,528
<INCOME-PRETAX> 291,425
<INCOME-TAX> 119,155
<INCOME-CONTINUING> 172,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 172,270
<EPS-PRIMARY> 1.18<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>
