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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 March 31, 1997
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 May 2, 1997
---------------------------- ------------------
Common Stock, $.10 Par Value 136,527,956 shares
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AFLAC INCORPORATED AND SUBSIDIARIES
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996................... 1
Consolidated Statements of Earnings -
Three Months Ended March 31, 1997 and 1996.............. 3
Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1997 and 1996.............. 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996.............. 5
Notes to Consolidated Financial Statements................ 7
Review by Independent Certified Public
Accountants............................................. 12
Independent Auditors' Report.............................. 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 14
Part II. Other Information:
Item 1. Legal Proceedings................................. 26
Item 4. Submission of Matters to a Vote
of Security Holders.............................. 26
Item 6. Exhibits and Reports on Form 8-K.................. 27
Items other than those listed above are omitted because they are not
required or are not applicable.
i
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Part I. Financial Information
AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
March 31, December 31,
1997 1996
(Unaudited)
------------- -------------
ASSETS:
Investments:
Securities available for sale, at fair value:
Fixed maturities (amortized cost,
$17,004,970 in 1997 and
$17,941,200 in 1996) $ 19,535,132 $ 20,327,726
Equity securities (cost, $94,270 in
1997 and $86,249 in 1996) 137,044 136,328
Mortgage loans on real estate 16,772 17,802
Other long-term investments 2,989 2,999
Short-term investments 957,315 261,680
------------ ------------
Total investments 20,649,252 20,746,535
Cash 9,698 -
Receivables, primarily premiums 217,131 226,981
Accrued investment income 211,458 253,850
Deferred policy acquisition costs 2,517,646 2,582,946
Property and equipment, net 442,581 471,907
Securities held as collateral for
loaned securities 2,900,482 573,911
Intangible assets, net 60,383 60,933
Other 99,138 105,749
------------ ------------
Total assets $ 27,107,769 $ 25,022,812
============ ============
See accompanying Notes to Consolidated Financial Statements.
(continued)
1
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AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
(In thousands, except for per-share amounts)
March 31, December 31,
1997 1996
(Unaudited)
------------ -------------
Liabilities and Shareholders' Equity:
Liabilities:
Policy liabilities:
Future policy benefits $ 18,069,222 $ 18,697,173
Unpaid policy claims 1,009,738 1,039,257
Unearned premiums 279,398 288,976
Other policyholders' funds 191,436 208,799
------------ ------------
Total policy liabilities 19,549,794 20,234,205
Notes payable 496,153 353,533
Income taxes, primarily deferred 1,268,752 1,181,121
Payables for return of collateral on
loaned securities 2,900,482 573,911
Payables for security transactions 142,825 99,408
Other 452,707 455,065
------------ ------------
Total liabilities 24,810,713 22,897,243
------------ ------------
Shareholders' equity:
Common stock of $.10 par value. Authorized
175,000; issued 157,351 in 1997 and
157,239 in 1996 15,735 15,724
Additional paid-in capital 212,583 208,994
Unrealized foreign currency
translation gains 240,748 229,782
Unrealized gains on securities
available for sale 424,285 280,154
Retained earnings 1,994,251 1,917,794
Treasury stock, at average cost (589,855) (526,425)
Notes receivable for stock purchases (691) (454)
------------ ------------
Total shareholders' equity 2,297,056 2,125,569
------------ ------------
Total liabilities and shareholders' equity $ 27,107,769 $ 25,022,812
============ ============
Shareholders' equity per share $ 16.82 $ 15.42
============ ============
See accompanying Notes to Consolidated Financial Statements.
2
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AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Earnings
(In thousands, except for
per-share amounts - Unaudited) Three Months Ended March 31,
----------------------------------
1997 1996
Revenues: ----------- -----------
Premiums, principally supplemental
health insurance $ 1,436,087 $ 1,456,363
Net investment income 251,629 251,399
Realized investment gains (losses) (443) (643)
Other income 20,270 22,801
---------- ----------
Total revenues 1,707,543 1,729,920
---------- ----------
Benefits and expenses:
Benefits and claims 1,187,069 1,209,009
Acquisition and operating expenses:
Amortization of deferred policy
acquisition costs 41,662 41,216
Insurance commissions 188,803 191,970
Insurance expenses 105,550 101,951
Interest expense 3,334 5,086
Other operating expenses 32,006 33,505
---------- ----------
Total acquisition and
operating expenses 371,355 373,728
---------- ----------
Total benefits and expenses 1,558,424 1,582,737
---------- ----------
Earnings before income taxes 149,119 147,183
Income taxes 58,962 60,660
---------- ----------
Net earnings $ 90,157 $ 86,523
========== ==========
Net earnings per share $ .64 $ .59
========== ==========
Shares used in computing
earnings per share 141,864 146,366
========== ==========
Cash dividends per share $ .10 $ .087
========== ==========
See accompanying Notes to Consolidated Financial Statements.
3
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AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands - Unaudited) Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
Common Stock:
Balance at beginning of year $ 15,724 $ 15,636
Exercise of stock options 11 30
---------- ----------
Balance at end of period 15,735 15,666
---------- ----------
Additional paid-in capital:
Balance at beginning of year 208,994 196,928
Exercise of stock options 969 2,292
Gain on treasury stock reissued 2,620 1,326
Cash in lieu of fractional shares - (83)
---------- ----------
Balance at end of period 212,583 200,463
---------- ----------
Unrealized foreign currency translation gains:
Balance at beginning of year 229,782 213,319
Change in unrealized translation gains,
net of income taxes 10,966 6,619
---------- ----------
Balance at end of period 240,748 219,938
---------- ----------
Unrealized gains on securities
available for sale:
Balance at beginning of year 280,154 482,787
Change in unrealized gains (losses),
net of income taxes 144,131 (126,154)
---------- ----------
Balance at end of period 424,285 356,633
---------- ----------
Retained earnings:
Balance at beginning of year 1,917,794 1,577,605
Net earnings 90,157 86,523
Cash dividends ($.10 per share
in 1997 and $.087 in 1996) (13,700) (12,329)
---------- ----------
Balance at end of period 1,994,251 1,651,799
---------- ----------
Treasury stock:
Balance at beginning of year (526,425) (351,117)
Purchases of treasury stock (70,109) (9,563)
Cost of shares issued to sales associates
stock bonus plan and dividend
reinvestment plan 6,679 5,004
---------- ----------
Balance at end of period (589,855) (355,676)
---------- ----------
Notes receivable for stock purchases (691) (978)
---------- ----------
Total shareholders' equity $ 2,297,056 $ 2,087,845
========== ==========
See accompanying Notes to Consolidated Financial Statements.
4
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AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands - Unaudited)
Three Months Ended
March 31,
-----------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Net earnings $ 90,157 $ 86,523
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Increase in policy liabilities 589,071 618,717
Deferred income taxes 13,508 18,276
Change in income taxes payable (53,658) (79,271)
Increase in deferred policy
acquisition costs (66,166) (59,202)
Change in receivables and
advance premiums 3,635 (9,993)
Other, net 36,086 75,425
---------- ----------
Net cash provided by operating
activities 612,633 650,475
---------- ----------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed-maturity securities sold 1,033,228 334,768
Fixed-maturity securities matured 79,347 196,061
Equity securities 17,841 181
Mortgage loans, net 811 1,762
Other long-term investments, net 11 362
Costs of investments acquired:
Fixed-maturity securities (1,103,036) (1,099,926)
Equity securities (18,313) (1,474)
Short-term investments, net (701,844) (182,606)
Additions to property & equipment, net (797) (4,367)
---------- ----------
Net cash used by investing activities $ (692,752) $ (755,239)
---------- ----------
(continued)
5
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AFLAC INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(In thousands - Unaudited)
Three Months Ended
March 31,
-----------------------------
1997 1996
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings $ 169,689 $ 125,917
Principal payments under debt
obligations (4,986) (4,617)
Dividends paid to shareholders (13,700) (12,329)
Purchases of treasury stock (70,109) (9,563)
Treasury stock reissued 9,299 6,330
Other, net 980 2,240
---------- ----------
Net cash provided by
financing activities 91,173 107,978
---------- ----------
Effect of exchange rate changes on cash (1,356) (728)
---------- ----------
Net change in cash 9,698 2,486
Cash at beginning of year - 4,139
---------- ----------
Cash at end of period $ 9,698 $ 6,625
========== ==========
Supplemental disclosures of cash
flow information:
Cash payments during the period for:
Interest on debt obligations $ 2,753 $ 3,787
Income taxes 98,778 121,699
See accompanying Notes to Consolidated Financial Statements.
6
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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 March 31,
1997, and the results of operations and statements of cash flows and
shareholders' equity for the three months ended March 31, 1997 and 1996.
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. As additional information becomes available (or
actual amounts are determinable), the recorded estimates may be revised and
reflected in operating results. Although some variability is inherent in
these estimates, management believes the amounts provided are adequate.
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, 1996.
Effective January 1, 1997 the Company changed its method of
determining the costs of investment securities sold from the first-in,
first-out (FIFO) method to the specific identification method. The specific
identification method allows the Company greater financial flexibility in
the matching of its assets and liabilities. Also, the specific
identification method is the predominant method used by the insurance
industry. This accounting change had no material effect on net earnings for
the three months ended March 31, 1997.
2. The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, on January 1, 1997. This Statement was
amended by SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125. SFAS No. 125 establishes criteria for
determining whether transfers of financial assets are sales or secured
borrowings and must be applied prospectively to all applicable transactions
occurring after December 31, 1996. The adoption of the 1997 provisions of
SFAS No. 125 had no material affect on the Company's net earnings or
shareholders' equity. SFAS No. 127 amended the effective date for those
transactions concerning secured obligations and collateral, which must now
be applied prospectively to all applicable transactions occurring after
December 31, 1997. Earlier or retroactive application is not permitted.
Beginning in 1998, as required by these standards, the Company will no
longer recognize securities held as collateral as an asset, nor the related
liability for return of such collateral. This change will have no affect on
the Company's net earnings or shareholders' equity.
7
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In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings per Share. Beginning on December 31, 1997, SFAS No. 128
will require the presentation of two earnings per share (EPS) numbers, basic
EPS and diluted EPS, in the statements of earnings. Basic EPS is computed
by dividing net earnings by the weighted-average number of shares
outstanding for the period. Diluted EPS includes the impact of stock
options and other common stock equivalents. The Company's present EPS
calculation is the same as the diluted method under SFAS No. 128. Earnings
per share calculated under the new Statement would be as follows for the
three months ended March 31:
1997 1996
-------- --------
Basic EPS $ .66 $ .61
Diluted EPS .64 .59
SFAS No. 129, Disclosures of Information about Capital Structure, was
also issued in February 1997 and is also effective December 31, 1997. This
Statement establishes standards for disclosing information about an entity's
capital structure. No changes in the Company's present disclosures will be
required under SFAS No. 129.
3. During 1996, the Company entered into definitive agreements for the
sale of its broadcast division business consisting of seven network-
affiliated television stations. The total pretax gain from this transaction
is estimated to be $325 million. The sale of one station, WAFB-TV in Baton
Rouge, Louisiana, closed on December 31, 1996. The pretax and after-tax
gains recognized on the sale of WAFB-TV in the fourth quarter of 1996 were
$60.3 million and $48.2 million, respectively. The sale of the remaining
six stations closed on April 15, 1997. The pretax gain on the sale of these
six stations is estimated to be $265 million and will be reflected in the
Company's second quarter financial statements.
8
<PAGE>
4. A summary of notes payable is as follows:
March 31, December 31,
(In thousands) 1997 1996
------------ ------------
2.74% unsecured, yen-denominated notes payable
to banks under reducing revolving credit
agreement, due annually through July 2001 $ 265,915 $ 284,238
Unsecured, yen-denominated notes payable to
banks under reducing revolving credit agreement,
variable interest rate (1.06% at March 31,
1997), due annually through July 2001 72,522 -
.88% short-term, unsecured, yen-denominated
notes payable to banks under reducing
revolving credit agreement, variable interest
rate, due July 15, 1997 103,948 -
Unsecured, yen-denominated notes payable to
banks, due semiannually, through October
1997, variable interest rate (.88% at
March 31, 1997) 16,328 17,453
9.60% to 10.72% unsecured notes payable to
bank, due semiannually, through 1998 13,667 15,389
Obligations under capitalized leases, due
monthly through 2001, secured by computer
equipment in Japan 22,957 25,392
Short-term yen-denominated note payable to
bank under unsecured line of credit,
refinanced in 1997 - 9,850
Other 816 1,211
---------- ----------
Total notes payable $ 496,153 $ 353,533
========== ==========
The Company has a reducing revolving credit agreement that currently
provides for bank borrowings of up to $450 million in either U.S. dollars or
equivalent Japanese yen. At March 31, 1997, bank borrowings of 54.9 billion
yen ($442.4 million) were outstanding under this agreement.
The Company has entered into interest rate swaps that effectively
change the Company's interest rate exposure on 33.0 billion yen of this loan
from variable interest rates to fixed interest rates. The fixed-rate is
2.74% after the effect of the swaps. Interest payments are made based on
variable interest rates and the Company either pays to or receives from the
counterparty an amount necessary to equal the fixed swap rate. At March 31,
1997, the variable rate based on the three-month Tokyo Interbank Offered
Rate plus loan costs of 25 basis points was .86%.
During the first quarter, the Company borrowed an additional 21.9
billion yen ($179.4 million) under this reducing revolving credit agreement
at variable interest rates of .88% and 1.06%. These amounts include the
refinancing of the short-term yen-denominated variable rate loan that was
outstanding at December 31, 1996.
The Company has designated its 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
9
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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.
5. 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
investment yields at these dates.
The net effect of unrealized gains and losses from securities
available for sale on shareholders' equity at the following dates was:
(In thousands) March 31, 1997 December 31, 1996
---------------- -----------------
Securities available
for sale - unrealized gains $ 2,572,726 $ 2,436,605
Less:
Policy liabilities 1,827,514 2,023,107
Deferred income taxes 320,927 133,344
------------ ------------
Shareholders' equity, net
unrealized gains on securities
available for sale $ 424,285 $ 280,154
============ ============
6. AFLAC Japan uses short-term (usually seven days) security lending
arrangements to increase investment income with minimal risk. At March 31,
1997 and December 31, 1996, the Company held Japanese government bonds as
collateral for loaned securities in the amount of $2.9 billion and $573.9
million, respectively, at fair value. Securities received as collateral for
such loans are reported separately in assets at fair value with a
corresponding liability of the same amount for the return of such collateral
at termination of the loans. (Beginning in 1998, such collateral assets and
the related liability will no longer be included on the balance sheet under
the accounting provisions of SFAS No. 125 and SFAS No. 127. Note 2.)
10
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7. The following is a reconciliation of the number of shares of the
Company's common stock for the three months ended March 31:
(In thousands) 1997 1996
---------- ----------
Common stock - number of shares:
Issued:
Balance at beginning of year 157,239 156,358
Exercise of stock options 112 307
-------- --------
Balance at end of period 157,351 156,665
-------- --------
Treasury stock - number of shares:
Balance at beginning of year 19,354 14,384
Purchases of treasury stock 1,709 303
Shares issued to sales associates
stock bonus plan and dividend
reinvestment plan (212) (200)
Exercise of stock options (28) (3)
-------- --------
Balance at end of period 20,823 14,484
-------- --------
Shares outstanding at end of period 136,528 142,181
======== ========
On May 5, 1997 the shareholders approved an increase in the number of
shares of common stock the Company is authorized to issue from 175 million
to 400 million shares.
8. 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.
9. On April 25, 1997 the Japanese Ministry of Finance issued an order to
a Japanese life insurer to cease operations and will begin a special
examination of the insurer to determine the extent of the problems. The
Company's future liability under Japan's policyholder protection system is
not presently determinable.
11
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REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The March 31, 1997 and 1996 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 13.
12
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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 consolidated balance sheet of AFLAC Incorporated and
subsidiaries as of March 31, 1997, and the related consolidated statements
of earnings for the three-month periods ended March 31, 1997 and 1996, and
the consolidated statements of cash flows and shareholders' equity for the
three-month periods ended March 31, 1997 and 1996. 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 any 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, 1996, 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, 1997,
we expressed an unqualified opinion on those consolidated financial
statements.
KPMG PEAT MARWICK LLP
April 22, 1997
13
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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.
RESULTS OF OPERATIONS
The following table sets forth the results of operations by business
component for the periods shown and the percentage change from the prior
period.
SUMMARY OF OPERATING RESULTS BY BUSINESS COMPONENT
(In millions, except for per-share amounts)
Percentage Change Three Months
Over Previous Ended March 31,
Period 1997 1996
-------------------- ------------------
Insurance operations (excluding
realized investment gains and
losses):
AFLAC Japan.................... (4.4)% $ 127.2 $ 133.0
AFLAC U.S...................... 24.8 37.4 30.0
------ ------
Total ....................... 1.0 164.6 163.0
Broadcast division operations...... (18.9) 3.5 4.4
Interest expense,
noninsurance operations.......... 38.9 (2.6) (4.2)
Corporate expenses, other
operations and eliminations...... (4.4) (15.9) (15.4)
------ ------
Pretax operating earnings........ 1.2 149.6 147.8
Realized investment gains (losses). (.5) (.6)
------ ------
Earnings before income taxes..... 1.3 149.1 147.2
Income taxes....................... (2.8) 58.9 60.7
------ ------
Net earnings................... 4.2 $ 90.2 $ 86.5
====== ======
Net earnings per share......... 8.5 $ .64 $ .59
====== ======
============================================================================
The following discussion of earnings comparisons focuses on pretax
operating earnings and excludes realized investment gains/losses.
14
<PAGE>
FOREIGN CURRENCY TRANSLATION
Due to the relative size of AFLAC Japan, fluctuations in the
yen/dollar exchange rate can have a significant effect on the Company's
reported results. The yen weakened in relation to the dollar throughout
1996 and the first quarter of 1997. The average yen-to-dollar exchange
rates were 121.28 and 105.84 for the three months ended March 31, 1997 and
1996, respectively. Operating earnings per share, which were affected by
the fluctuations in the value of the yen, increased 8.5% to $.64 for the
three months ended March 31, 1997 compared with the same period in 1996.
The 12.7% weakening of the yen in 1997 lowered operating earnings by
approximately $.06 per share for the three months ended March 31, 1997.
This per-share amount was solely attributable to the translation effect of
the fluctuations in the yen and not to any fundamental change in business
operations.
The Company sets its growth objective for operating earnings per share
before the effect of foreign currency fluctuations. Excluding the effect of
currency fluctuations, operating earnings per share increased 18.6% for the
three months ended March 31, 1997 compared with the same period in 1996.
The table below illustrates the effect of foreign currency translation
on the Company's reported results by comparing those results as if foreign
currency rates had remained unchanged. In years when the yen weakens,
translating yen into dollars causes smaller increases or negative percentage
changes for financial results in dollars. When the yen strengthens,
translating yen into dollars causes larger increases for financial results
in dollars.
AFLAC Incorporated and Subsidiaries
Supplemental Consolidated Data
Selected Percentage Changes for the Three Months Ended March 31, 1997
Adjusted to
Exclude Foreign
As Reported Currency Changes*
----------- ----------------
Premium income (1.4)% 10.4%
Net investment income .1 11.1
Total revenues (1.3) 10.2
Total benefits and expenses (1.5) 10.1
Operating earnings** 4.1 14.6
Operating earnings per share** 8.5 18.6
- ----------------------------------------------------------------------------
*Amounts excluding foreign currency changes shown above were determined
using the same yen/dollar exchange rate for the current period as the
comparable period in the prior year.
**Excludes realized investment gains/losses.
============================================================================
The Company's objective for 1997 is to increase operating earnings per
share by 17% for the year, excluding the effect of currency translation.
However, if that objective is achieved and the yen/dollar exchange rate
averages 125.00 compared with the 1996 average rate of 108.84, operating
earnings per share including foreign currency translation would increase by
approximately 6% for the year 1997.
15
<PAGE>
Despite the weakening of the yen during 1997, operating earnings per
share increased for the three-month period ended March 31, 1997 compared
with the same period in 1996. The increase reflected strong earnings in the
functional currencies of AFLAC's core insurance operations in Japan and the
United States, additional investment income on the proceeds from the sale of
one television station, and a consolidated benefit from additional
investment income associated with profit repatriations from AFLAC Japan to
AFLAC U.S.
PROFIT REPATRIATION
AFLAC Japan repatriated profits to AFLAC U.S. of $217.3 million in
1996, $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 $8.6
million and $5.0 million for the quarters ended March 31, 1997 and 1996,
respectively. The Company expects to repatriate, subject to approval by the
Japanese Ministry of Finance, approximately $300 million from AFLAC Japan to
AFLAC U.S. in 1997 which includes $140 million of a non-recurring nature.
SHARE REPURCHASE PROGRAM
During the first quarter, the Company purchased 1.7 million shares of
its common stock. The Company has purchased 22.1 million shares (through
March 31, 1997) since the inception of the share repurchase program in
February 1994. The difference in percentage increases in net earnings and
net earnings per share primarily reflects the impact of the share repurchase
program.
INSURANCE OPERATIONS, AFLAC JAPAN
AFLAC Japan, a branch of AFLAC and the principal contributor to the
Company's earnings, ranks number one in terms of premium income and profits
among all foreign life and non-life insurance companies operating in Japan.
Among all life insurance companies operating in Japan, AFLAC Japan ranks
fourth in terms of individual policies in force and 17th in terms of assets.
The transfer of profits from AFLAC Japan to AFLAC U.S. distorts
comparisons of operating results between years. Therefore, the AFLAC Japan
summary of operations table on the following page presents investment
income, total revenues and pretax operating earnings calculated on a pro
forma basis in order to improve comparability between years. The pro forma
adjustment represents cumulative investment income foregone by AFLAC Japan
on funds repatriated to AFLAC U.S. during 1992 through 1996.
16
<PAGE>
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
THREE-MONTH PERIOD ENDED MARCH 31,
In Dollars
(In millions) 1997 1996
--------------------------
Premium income......................... $ 1,176.7 $ 1,224.1
Investment income, as adjusted*........ 221.5 227.0
Other income........................... .3 .4
---------- ----------
Total revenues, as adjusted*......... 1,398.5 1,451.5
---------- ----------
Benefits and claims.................... 1,023.6 1,064.6
Operating expenses..................... 241.1 248.6
---------- ----------
Total benefits and expenses.......... 1,264.7 1,313.2
---------- ----------
Pretax operating earnings,
as adjusted*...................... 133.8 138.3
Investment income applicable to
profit repatriations.................. (6.6) (5.3)
---------- ----------
Pretax operating earnings.......... $ 127.2 $ 133.0
========== ==========
- ----------------------------------------------------------------------------
Percentage changes in dollars
over previous period:
Premium income....................... (3.9)% (1.1)%
Investment income*................... (2.4) 3.4
Total revenues*...................... (3.7) (.5)
Pretax operating earnings*........... (3.2) .2
Pretax operating earnings............ (4.4) (.5)
- ----------------------------------------------------------------------------
Percentage changes in yen
over previous period:
Premium income....................... 10.2% 8.7%
Investment income*................... 11.9 13.7
Total revenues*...................... 10.4 9.4
Pretax operating earnings*........... 11.1 10.1
Pretax operating earnings............ 9.7 9.3
- ----------------------------------------------------------------------------
Ratios to total revenues, as adjusted:*
Benefits and claims.................. 73.2% 73.4%
Operating expenses................... 17.2 17.1
Pretax operating earnings............ 9.6 9.5
Ratio of pretax operating earnings
to total reported revenues........... 9.1 9.2
- ----------------------------------------------------------------------------
*Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income of $6.6 million in 1997
and $5.3 million in 1996, foregone due to profit repatriations.
============================================================================
17
<PAGE>
JAPAN SALES
The increase in premium income in yen was due to sales of new policies
and continued excellent policy persistency.
As expected, sales declined during the first quarter in Japan. New
annualized premium sales decreased 19.8% to 14.0 billion yen. Management
believes the sales decline reflects Japan's weak economy and the impact of
the premium rate increase on new policy issues which took effect in the
fourth quarter of 1996. The Ministry of Finance required all life insurers
to raise premium rates on all new policy issues in order to help compensate
for the continued low level of available investment yields. For the first
time, AFLAC increased rates on all of its products simultaneously. In the
past, the Company had implemented premium rate increases on a product-by-
product basis. The Company's experience with previous rate increases showed
that sales of the product with the increased price would be sluggish for six
months or more following the rate hike.
Management has taken several actions to help compensate for the weak
sales in Japan. First, a new economy cancer life policy was introduced in
January 1997. This new plan has lower premium rates and benefit levels.
Based on initial marketing results of the new economy plan, management
believes it will appeal to younger consumers and those who have postponed a
purchase decision due to the weak economy. In addition, the Company will
increase the use of direct mail marketing for its products as a supplemental
distribution method, and will continue its popular television advertising
program. As a result of these and other initiatives, management expects
AFLAC Japan's sales to improve as the year progresses and end the year with
a sales increase of 6% or more.
JAPAN INVESTMENTS
The historically low level of available investment yields continued to
make investing AFLAC Japan's huge cash flows a difficult task during the
quarter. However, the Company continued to seek the highest investment
yields available in longer-dated securities without sacrificing investment
quality. In fact, management was able to secure attractive yields through
forward purchase commitments. As of April 11, the Company had invested or
committed to invest approximately 50% of the expected 1997 cash flow at an
average yield to maturity of 4.55%. This yield compares with the yield on a
composite index of 10-year Japanese government bonds of 2.53% at the end of
the quarter.
During the first quarter, the Company purchased yen-denominated
securities at an average yield to maturity of 3.96%. Including dollar-
denominated investments, the blended new money yield to maturity for the
quarter was 4.08%.
The yield to maturity on AFLAC Japan's fixed-maturity portfolio
declined from 5.58% at year-end to 5.46% at the end of the first quarter.
The return on average invested assets was 5.40% for the first quarter,
compared with 5.64% for the first quarter of 1996 and 5.54% for the full
year 1996.
18
<PAGE>
JAPAN OTHER
In 1994, the Japanese government passed a package of tax reform bills
centering on an increase in the consumption tax, which is similar to a sales
tax in the United States. The consumption tax increased from the rate of 3%
to 5% effective April 1, 1997. AFLAC Japan currently incurs consumption tax
on agents' commissions. The Company implemented changes in its compensation
arrangements with its agents to mitigate a portion of this tax increase.
In March 1997, the Japanese government ratified new income tax
provisions that increase Japan's income taxes on investment income received
by foreign companies operating in Japan from securities issued from their
home country. The new provisions are effective beginning in 1998. If the
new income tax provisions had been effective January 1, 1997 in its present
form, AFLAC Japan's income tax expense would have been increased, and net
earnings of the Company would have decreased by approximately $5.9 million
for the quarter ended March 31, 1997. Management has evaluated the impact
of this tax change and will seek to mitigate some of the tax impact through
investment alternatives and by restructuring portions of the existing
investment portfolio. Management does not expect this tax change to
materially affect future net earnings of the Company.
INSURANCE OPERATIONS, AFLAC U.S.
AFLAC U.S. pretax operating earnings continued to benefit from
additional investment income earned on profit transfers received from AFLAC
Japan. AFLAC U.S. received profit transfers in the amounts of $217.3
million in 1996, $140.5 million in 1995, $132.9 million in 1994, $97.9
million in 1993, and $33.4 million in 1992. AFLAC U.S. in turn increased
dividend payments to the Parent Company in the amounts of $64.3 million,
$21.2 million, $51.9 million and $10.1 million for the full years 1996,
1995, 1994 and 1993, respectively. Estimated investment income earned from
profits repatriated to and retained by AFLAC U.S. from 1992 through 1996,
along with estimated investment income earned from proceeds from the sale of
one television station on December 31, 1996, have been reclassified in the
following presentation in order to improve comparability between periods.
19
<PAGE>
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
THREE-MONTH PERIOD ENDED MARCH 31,
(In millions) 1997 1996
--------------------------
Premium income......................... $ 256.8 $ 229.1
Investment income, as adjusted*........ 23.9 21.0
Other income........................... .4 .4
-------- --------
Total revenues, as adjusted*......... 281.1 250.5
-------- --------
Benefits and claims.................... 160.8 141.8
Operating expenses..................... 94.6 85.4
-------- --------
Total benefits and expenses.......... 255.4 227.2
-------- --------
Pretax operating earnings,
as adjusted*...................... 25.7 23.3
Investment income applicable to profit
repatriations and proceeds from the
sale of one television station........ 11.7 6.7
-------- --------
Pretax operating earnings.......... $ 37.4 $ 30.0
======== ========
- ----------------------------------------------------------------------------
Percentage increases
over previous period:
Premium income....................... 12.1% 9.3%
Investment income*................... 13.7 13.1
Total revenues*...................... 12.2 9.6
Pretax operating earnings*........... 10.2 10.0
Pretax operating earnings............ 24.8 18.5
- ----------------------------------------------------------------------------
Ratios to total revenues, as adjusted:*
Benefits and claims.................. 57.3% 56.6%
Operating expenses................... 33.6 34.1
Pretax operating earnings............ 9.1 9.3
Ratio of pretax operating earnings
to total reported revenues........... 12.8 11.7
- ----------------------------------------------------------------------------
*Excludes estimated investment income of $11.7 million in 1997 related to
investment of profit repatriation funds retained by AFLAC U.S. and
investment of proceeds from the sale of one television station, and $6.7
million in 1996 related to investment of profit repatriation funds retained
by AFLAC U.S.
============================================================================
U.S. SALES
The increase in premium income was primarily due to an increase in new
sales over the last 12 months. Sales were the best in the history of AFLAC
U.S. New annualized premium sales in the first quarter rose 21.0% to
20
<PAGE>
$94.3 million. The Company continued to produce strong sales of its
accident/disability plan and short-term disability policy. Management
believes these sales results reflect AFLAC's strong market position and a
growing need for supplemental insurance in the changing U.S. health care
environment. Management expects new policy sales to increase by 15% or
better for the year 1997.
U.S. INVESTMENTS
The increase in investment income was primarily due to the continued
cash flow from operations. During the first quarter, available cash flow
was invested at an average yield-to-maturity of 7.78% compared with 7.11%
during the first quarter of 1996. The overall return on average invested
assets, net of investment expenses, decreased slightly for the first three
months of 1997 compared with the first quarter of 1996, to 7.28% from 7.43%.
U.S. OTHER
Management expects the operating expense ratio, excluding
discretionary advertising expenses, to continue to decline slightly 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. Management expects the pretax
operating profit margin, which was 9.3% for the year 1996 excluding the
effect of repatriation, to remain approximately the same in 1997.
The operating results reflect slightly higher benefit ratios 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. However, the aggregate benefit ratio has been relatively stable due
to the mix of business shifting towards accident and hospital indemnity
policies, which have lower benefit ratios than other products.
BROADCAST OPERATIONS
During 1996, the Company entered into definitive agreements for the
sale of its broadcast division business consisting of seven network-
affiliated television stations. The total pretax gain from this transaction
is estimated to be $325 million. The sale of one station, WAFB-TV in Baton
Rouge, Louisiana, closed on December 31, 1996. The pretax and after-tax
gains recognized on the sale of WAFB-TV in the fourth quarter of 1996 were
$60.3 million and $48.2 million, respectively. The sale of the remaining
six stations closed on April 15, 1997. The pretax gain on the sale of these
six stations is estimated to be $265 million and will be reflected in the
Company's second quarter financial statements.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
For information regarding new Statements of Financial Accounting
Standards see Note 2 of the Notes to the Consolidated Financial Statements.
21
<PAGE>
ANALYSIS OF FINANCIAL CONDITION
Since December 31, 1996, the financial condition of the Company has
remained strong in the functional currencies of its operations. The
investment portfolios of AFLAC Japan and AFLAC U.S. have continued to grow
and consist of high-quality securities.
Due to the significance of yen-denominated items in the balance sheet,
changes in the yen/dollar exchange rate can have a significant effect on the
Company's financial statements. The yen/dollar exchange rate at the end of
each period is used to convert yen-denominated balance sheet items into U.S.
dollars for reporting purposes. The exchange rate at March 31, 1997, was
124.10 yen to one U.S. dollar, 6.4% weaker than the exchange rate of 116.10
as of December 31, 1996. Management estimates that the weaker yen rate
decreased invested assets by $1.2 billion, total assets by $1.6 billion, and
total liabilities by $1.6 billion versus the amounts that would have been
reported based on the exchange rate as of December 31, 1996.
INVESTED ASSETS
Securities available for sale are carried at fair value. The
following table shows an analysis of invested assets (including cash):
March 31, December 31,
(In thousands) 1997 1996 % Change
--------- ------------ --------
AFLAC U.S.:
Total invested assets, at cost
or amortized cost $ 2,086,544 $ 1,910,154 9.2%
Unrealized gains on securities
available for sale 51,208 101,258
---------- ----------
Total invested assets $ 2,137,752 $ 2,011,412 6.3%
========== ========== ========
AFLAC Japan:
Total invested assets, at cost
or amortized cost $16,003,995 $16,390,997 (2.4)%
Unrealized gains on securities
available for sale 2,521,518 2,334,537
---------- ----------
Total invested assets $18,525,513 $18,725,534 (1.1)%
========== ========== =========
Consolidated:
Total invested assets, at cost
or amortized cost $18,086,224 $18,309,930 (1.2)%
Unrealized gains on securities
available for sale 2,572,726 2,436,605
---------- ----------
Total invested assets $20,658,950 $20,746,535 (.4)%
========== ========== =========
Net unrealized gains of $2.6 billion on securities available for sale
at March 31, 1997 consisted of $2.6 billion in gross unrealized gains and
$47.2 million in gross unrealized losses.
22
<PAGE>
The continued growth in invested assets in their functional currencies
reflects the strength of the Company's primary business, the substantial
cash flows from operations, strong new annualized premium sales by AFLAC
U.S., and the substantial renewal premiums collected by AFLAC Japan. In
addition, the Company received $98.5 million in cash in conjunction with the
sale of a television station on December 31, 1996.
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 and utilizes a variety of credit rating
services to monitor this criteria. Applying those various credit ratings to
a standardized rating system based on a nationally recognized service's
categories, the percentages of the Company's fixed-maturity securities
available for sale, at amortized cost, were as follows:
March 31, 1997 December 31, 1996
-------------- -----------------
AAA 46.4% 46.2%
AA 18.2 19.6
A 24.6 26.0
BBB 10.8 8.2
----- -----
100.0% 100.0%
Private placement investments accounted for 32.0% and 28.8% of the
Company's total fixed-maturity securities available for sale as of March 31,
1997 and December 31, 1996, 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
Policy liabilities decreased $684.4 million, or 3.4%, during the first
three months of 1997. AFLAC Japan decreased $730.2 million, or 4.0% (2.7%
increase in yen), and AFLAC U.S. increased $49.4 million, or 2.9%. The
weaker yen rate decreased reported policy liabilities by $1.2 billion.
Items that offset this decrease in policy liabilities are the addition of
new business and the aging of policies in force. The effect of market value
adjustments on fixed-maturity securities also caused a decrease in policy
liabilities (see Note 5 of Notes to the Consolidated Financial Statements).
DEBT
See Note 4 of the Notes to the Consolidated Financial Statements for
information on debt outstanding at March 31, 1997.
The Company's ratio of debt to total capitalization (debt plus
shareholders' equity, excluding the unrealized gains on securities available
for sale) was 20.9% and 16.1% as of March 31, 1997 and December 31, 1996,
respectively.
23
<PAGE>
SECURITY LENDING
AFLAC Japan uses short-term (usually seven days) security lending
arrangements to increase investment income with minimal risk. At March 31,
1997, the Company held Japanese government bonds as collateral for loaned
securities in the amount of $2.9 billion at fair value. For further
information regarding such arrangements, see Note 6 of the Notes to the
Consolidated Financial Statements.
SHAREHOLDERS' EQUITY
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.
The achievement of continued long-term growth will require growth in the
statutory capital and surplus of the Company's insurance subsidiaries. AFLAC
may secure additional statutory capital through various sources, such as
internally generated statutory earnings or equity contributions by the Parent
Company from funds generated through debt or equity offerings. The disposition
of the AFLAC Broadcast Division has increased the Company's capital resources.
Management believes outside sources for additional debt and equity capital will
continue to be available for capital expenditures, business expansion, and the
Company's share repurchase program.
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 $9.5 million in the first quarter of 1997 and $253.6 million and
$179.5 million in the full years 1996 and 1995, respectively. Profit
repatriations have been remitted annually from AFLAC Japan to AFLAC U.S. in
July. During the last few years, the MOF has developed solvency standards, a
version of 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, 1996.
24
<PAGE>
OTHER
The Life Insurance Association of Japan, an industry organization, has
established a policyholder protection fund for losses from insolvent life
insurers in Japan. The Company was required to pledge investment securities
to the Life Insurance Association of Japan for this program. At March 31,
1997, $47.6 million, at fair value, of AFLAC Japan's investment securities
had been pledged to this fund. On April 25, 1997, the Japanese Ministry of
Finance issued an order to a Japanese life insurer to cease operations and
will begin a special examination of the insurer to determine the extent of
the problems. The Company's future liability under Japan's policyholder
protection system is not presently determinable.
For information regarding pending litigation, see Note 8 of the Notes
to the Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" to encourage companies to provide prospective information about
their companies, so long as those statements are identified as forward-
looking and are accompanied by meaningful, cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed. The Company desires to take advantage of these provisions.
This report contains cautionary statements identifying important factors
that could cause actual results to differ materially from those projected in
this discussion and analysis, and in any other statements made by officers
of the Company in oral discussions with analysts and contained in documents
filed with the Securities and Exchange Commission (the SEC). Forward-
looking statements are not based on historical information and relate to
future operations, strategies, financial results or other developments. In
particular, statements containing words such as "expect," "anticipate,"
"believe," "goal," "objective" or similar words generally qualify as
forward-looking. The Company undertakes no obligation to update such
forward-looking statements.
The Company cautions that the following factors, in addition to other
factors mentioned from time to time in the Company's reports filed with the
SEC, could cause the Company's actual results to differ materially:
regulatory developments, competitive conditions, new products, Japanese
Ministry of Finance approval of profit repatriations to the United States,
general economic conditions in the United States and Japan, changes in U.S.
and/or Japan tax laws, adequacy of reserves, credit and other risks
associated with the Company's investment portfolio, significant changes in
interest rates and fluctuations in foreign currency exchange rates.
25
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in various litigation considered to be in
the normal course of business. Some of this litigation is pending in
Alabama, where large punitive damages bearing little relation to the actual
damages sustained by plaintiffs have been awarded against other companies,
including insurers, in recent years. Although the final results of any
litigation cannot be predicted with certainty, the Company believes the
outcome of pending litigation will not have a material adverse effect on the
financial position of the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders was held on May 5, 1997.
Matters submitted to the shareholders were: (1) Election of 17 members to
the board of directors; (2) Increase the Company's authorized shares of
$.10 par value common stock from 175 million to 400 million shares; (3)
Adopt the Company's proposed 1997 Stock Option Plan; and (4) Ratification of
the selection of auditors for 1997. The four proposals were approved by the
shareholders.
A summary of each vote cast for, against or withheld, as well as the
number of abstention and broker non-votes, as to each such matter, including
a separate tabulation with respect to each nominee for office is as follows:
VOTES
---------------------------------------------------
Absten- With- Broker
For Against tions held Non-Votes
----------------------------------------------------
(1) Election of 17
members to the board of
directors:
Paul S. Amos 299,638,578 N/A N/A 1,042,469 545,194
Daniel P. Amos 299,687,443 N/A N/A 993,604 545,194
J. Shelby Amos, II 299,635,456 N/A N/A 1,045,591 545,194
Michael H. Armacost 299,798,254 N/A N/A 882,793 545,194
M. Delmar Edwards, M.D. 299,571,114 N/A N/A 1,109,933 545,194
George W. Ford, Jr. 299,518,099 N/A N/A 1,162,948 545,194
Joe Frank Harris 299,355,202 N/A N/A 1,325,845 545,194
Elizabeth J. Hudson 299,853,493 N/A N/A 827,554 545,194
Kenneth S. Janke, Sr. 299,846,712 N/A N/A 834,335 545,194
Charles B. Knapp 299,813,272 N/A N/A 867,775 545,194
Hisao Kobayashi 299,824,578 N/A N/A 856,469 545,194
Yoshiki Otake 299,826,117 N/A N/A 854,930 545,194
E. Stephen Purdom 299,743,812 N/A N/A 937,235 545,194
Barbara K. Rimer 299,794,634 N/A N/A 886,413 545,194
Henry C. Schwob 299,571,560 N/A N/A 1,109,487 545,194
J. Kyle Spencer 299,455,389 N/A N/A 1,225,658 545,194
Glenn Vaughn, Jr. 299,753,097 N/A N/A 927,950 545,194
26
<PAGE>
VOTES
---------------------------------------------------
Absten- With- Broker
For Against tions held Non-Votes
----------------------------------------------------
(2) Increase the
Company's authorized
shares of $.10 par
value common stock to
400 million shares 272,329,339 27,340,030 1,550,775 N/A 6,097
(3) Adopt the
Company's proposed
1997 Stock Option Plan 264,193,650 15,200,872 3,316,715 N/A 18,515,004
(4) Ratification of
appointment of KPMG
Peat Marwick LLP as
independent auditors 298,579,148 1,266,928 1,380,165 N/A None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.0 - Articles of Incorporation, 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
March 31, 1997.
Items other than those listed above are omitted because they are not
required or are not applicable.
27
<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 May 12, 1997 /s/ KRISS CLONINGER, III
------------------------ ---------------------------
KRISS CLONINGER,III
Executive Vice President;
Treasurer and
Chief Financial Officer
Date May 12, 1997 /s/ NORMAN P. FOSTER
------------------------ ---------------------------
NORMAN P. FOSTER
Executive Vice President,
Corporate Finance
28
<PAGE>
EXHIBITS FILED WITH CURRENT FORM 10-Q:
3.0 - Articles of Incorporation, as amended.
27.0 - Financial Data Schedule (for SEC use only).
29
<PAGE>
ARTICLES OF AMENDMENT
The shareholders of AFLAC INCORPORATED, a corporation organized and
existing under the laws of the State of Georgia, did on May 5, 1997, adopt
an amendment to the Articles of Incorporation of said corporation such that
the first sentence of Article IV is amended to read in its entirety as
follows:
"The corporation shall have the authority to issue four
hundred million (400,000,000) shares of common stock having a
par value of $.10 per share (the "Common Stock")."
Such amendment was adopted by the vote of the holders of
272,329,338.797 votes, there being 386,258,207 votes outstanding and
entitled to vote thereon. The affirmative vote of the holders of a majority
of the outstanding voting rights of Common Stock entitled to vote is
required to amend the Articles of Incorporation.
IN WITNESS WHEREOF, AFLAC INCORPORATED has caused these Articles of
Amendment to be executed and its corporate seal to be affixed and has caused
the foregoing to be attested, all by its duly authorized officers, on this
6th day of May, 1997.
By: /s/ Daniel P. Amos
------------------------------------
Name: DANIEL P. AMOS, President
Title: and Chief Executive Officer
ATTEST: /s/ Joey M. Loudermilk
---------------------------
Name: JOEY M. LOUDERMILK
Title: Secretary
(Corporate Seal)
1
<PAGE>
ARTICLES OF AMENDMENT
Pursuant to the provisions of the Georgia Business Corporation Code,
Section 14-2-1006, the undersigned corporation hereby amends its Articles of
Incorporation, and for that purpose, submits the following statement:
(1) The name of the corporation is: American Family Corporation
(2) The text of each amendment adopted is:
"The name of the corporation is AFLAC Incorporated"
"The title of the Bylaws of the Corporation be, effective January 1, 1992,
amended to read as follows: 'Bylaws of AFLAC Incorporated.'"
(3) The manner of implementation of any exchange reclassification, or
cancellation of issued shares is as follows: All outstanding shares of
American Family Corporation will be honored as shares of AFLAC Incorporated;
all reissued or newly issued shares after January 1, 1992 will be in the
name of AFLAC Incorporated.
(4) The amendment was duly adopted on December 10, 1991 by the board
of directors without shareholder approval, as such approval is not required.
(5) The date said name change will be effective is January 1, 1992.
(6) The corporation certifies that a notice of Intent to File Articles
of Amendment to change name of corporation and a publishing fee of $40.00
has been delivered to the Columbus Ledger-Enquirer, as required by law, the
date below written.
American Family Corporation
DATE: December 10, 1991
/s/ Joey M. Loudermilk
-----------------------------------
JOEY M. LOUDERMILK
General Counsel and
Assistant Corporate Secretary
2
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FAMILY CORPORATION
I. The name of the corporation is American Family Corporation (the
"Corporation"),
II. These Articles of Amendment amend Article IV, Section (iii) of
the Articles of Incorporation of the Corporation by adding the following
sentence following the word "therefore":
"Shares purchased by the Corporation shall become Treasury
shares and may be reissued."
III. The amendment was adopted by the Board of Directors of the
Corporation on October 15, 1990. In accordance with Section 14-2-631(d) of
the Georgia Business Corporation Code, no shareholder action was required
for the amendment.
IN WITNESS WHEREOF, American Family Corporation has caused these
Restated Articles of Amendment to be executed and its corporate seal to be
affixed and has caused the foregoing to be attested by its duly authorized
officer, on this 26th day of March, 1991.
AMERICAN FAMILY CORPORATION
By: /s/ Daniel P. Amos
------------------------------
Daniel P. Amos
Title: Chief Executive Officer
------------------------------
(Corporate Seal)
ATTEST:
/s/ Louis A. Hazouri, Jr.
- ------------------------------------
Louis A. Hazouri, Jr.
Secretary
3
<PAGE>
ARTICLES OF AMENDMENT
The shareholders of AMERICAN FAMILY CORPORATION, a corporation
organized and existing under the laws of the State of Georgia, did on April
25, 1988, adopt an amendment to the Articles of Incorporation of said
Corporation as follows:
"No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of duty of care
or other duty as a director. Notwithstanding the foregoing, a
director shall be liable to the extent provided by applicable
law: (i) for the appropriation in violation of his duties of
any business opportunity of the corporation; (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for any action
for which the director could be found liable pursuant to
Section 14-2-154 of the Official Code of Georgia Annotated, or
any amendment thereto or successor provision thereto; and
(iv) for any transaction from which the director derived an
improper personal benefit. This provision shall not eliminate
or limit the liability of a director for any act or omission
occurring prior to April 26, 1988 (the effective date of the
amendment). If the Official Code of Georgia Annotated hereafter
is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of the director
of the corporation, in addition to the limitation on personal
liability provided herein, shall be limited to the fullest extent
permitted by the amended Official Code of Georgia Annotated. No
amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director
of the corporation for or with respect to any acts or omission
of such director occurring prior to the effective date of such
amendment."
Said amendment was adopted by the vote of the holders of
234,783,541.672 votes, there being 80,957,884 shares outstanding and
entitled to vote thereon. The vote of a majority of shareholders entitled
to vote is required to amend the Articles of Incorporation.
IN WITNESS WHEREOF, the American Family Corporation has caused these
Articles of Amendment to be executed and its corporate seal to be affixed
and has caused the foregoing to be attested, all by its duly authorized
officers, on this 25th day of April, 1988.
By: /s/ Joey M. Loudermilk
-------------------------------
Vice President
ATTEST: /s/ Jay W. Hobson
----------------------------
Assistant Secretary
(Corporate Seal)
4
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FAMILY CORPORATION
I.
The name of the Corporation is American Family Corporation.
II.
The Articles of Incorporation of American Family Corporation are hereby
amended by striking in its entirety the first sentence of Article IV of said
Articles and adding thereto the following new first sentence of Article IV
so that the Articles of Incorporation of American Family Corporation, as
amended, shall read as follows: "The Corporation shall have authority to
issue one hundred seventy-five million (175,000,000) shares of common stock
having a par value of $.10 per share (the "Common Stock").
III.
The amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof was adopted by the shareholders of the
Corporation at a meeting duly held on April 27, 1987.
IV.
(a) The vote of the shareholders of the Corporation required to adopt
the Amendment set forth in Section II hereof was the vote of the holders of
a majority of the stock of the Corporation having voting power defined as
follows: Except as otherwise provided in subparagraph (2) of this paragraph
(a), every holder of record of the Corporation's common stock shall be
entitled to:
(1) Vote in person or by proxy on each matter submitted to a vote
at a meeting of shareholders for each share of the common stock of record by
such holder as of the record date of such meeting.
(2) Notwithstanding subparagraph (1) of this paragraph (a), a
holder of record of a share of the common stock which share meets one or
both of the following criteria, shall be entitled to ten (10) votes on each
matter submitted to a vote at a meeting of shareholders for each share of
the common stock so owned by such holder of record as of the record of such
meeting.
(i) Such share of the common stock has had the same
beneficial owner since April 22, 1985, or
(ii) Such share of the common stock has had the same
beneficial owner for a continuous period of greater than 48 months prior to
the record date of such meeting.
5
<PAGE>
(b) The number of shares of the Corporation's common stock which were
issued and outstanding and entitled to vote as of March 6, 1987 the record
date for said shareholders' meeting, was 80,512,901. Of said shares,
50,306,837 shares had the right to vote one vote per share and 30,206,064
shares had the right to vote ten votes per share. The total number of
voting rights represented by said shares was 352,367,477.
(c) The number of voting rights required to be voted to adopt the
Amendment was 176,183,739 representing the majority of the voting rights
represented by the issued and outstanding shares entitled to vote thereon.
The number of voting rights of the Corporation's common stock being voted in
favor of said Amendment, voting generally and as a class, was 227,157,291 or
64.5 percent of the voting rights represented by the issued and outstanding
shares entitled to vote. The number of voting rights being voted against
the Amendment was 16,015,896. The number of voting rights which
affirmatively abstained from voting on the Amendment were 2,406,842.
V.
The majority of the votes cast by the shareholders entitled to vote at
the meeting of shareholders were voted to adopt said amendment in accordance
with the provisions of the charter and Section 14-2-191 of the Official Code
of Georgia Annotated.
VI.
The Amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof does not provide for an exchange or cancellation
of any issued shares of the Corporation.
VII.
The Amendment effects no change in the stated capital of the
Corporation.
IN WITNESS WHEREOF, American Family Corporation has caused these
Articles of Amendment to be executed and its corporate seal to be affixed
and has caused the foregoing to be attested, all by its duly authorized
officers, on this 11th day of June, 1987.
AMERICAN FAMILY CORPORATION
By: /s/ John B. Amos
-------------------------------
Chairman of the Board
Attest:
/s/ Louis A. Hazouri, Jr.
- -------------------------------
Secretary
(Corporate Seal)
6
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FAMILY CORPORATION
I.
The name of the Corporation is American Family Corporation.
II.
The Articles of Incorporation of American Family Corporation are hereby
amended by striking in its entirety the first sentence of Article IV of said
Articles and adding thereto the following new first sentence of Article IV
so that the Articles of Incorporation of American Family Corporation, as
amended, shall read as follows: "The Corporation shall have authority to
issue not more than 100,000,000 shares of common stock having a par value of
$.10 per share."
III.
The amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof was adopted by the shareholders of the
Corporation at a meeting duly held on April 28, 1986.
IV.
(a) The vote of the shareholders of the Corporation required to adopt
the Amendment set forth in Section II hereof was the vote of the holders of
a majority of the stock of the Corporation having voting power defined as
follows: Except as otherwise provided in subparagraph (2) of this paragraph
(a), every holder of record of the Corporation's common stock shall be
entitled to:
(1) Vote in person or by proxy on each matter submitted to a vote
at a meeting of shareholders for each share of the common stock held of
record by such holder as of the record date of such meeting.
(2) Notwithstanding subparagraph (1) of this paragraph (a), a
holder of record of a share of the common stock, which share meets one or
both of the following criteria, shall be entitled to ten (10) votes on each
matter submitted to a vote at a meeting of shareholders for each share of
the common stock so owned by such holder of record as of the record of such
meeting.
(i) Such share of the common stock has had the same
beneficial owner since April 22, 1985, or
(ii) Such share of the common stock has had the same
beneficial owner for a continuous period of greater than 48 months prior to
the record date of such meeting.
7
<PAGE>
(b) The number of shares of the Corporation's common stock which were
issued and outstanding and entitled to vote as of March 7, 1986, the record
date for said shareholders' meeting, was 39,986,385. Of said shares,
22,800,839 shares had the right to vote one vote per share and 17,185,545.6
shares had the right to vote ten votes per share. The total number of
voting rights represented by said shares was 194,656,295.
(c) The number of voting rights required to be voted to adopt the
Amendment was 97,328,148, representing the majority of the voting rights
represented by the issued and outstanding shares entitled to vote thereon.
The number of voting rights of the Corporation's common stock being voted in
favor of said Amendment, voting generally and as a class, was 141,679,373,
or 72.8 percent of the voting rights represented by the issued and
outstanding shares entitled to vote. The number of voting rights being
voted against the Amendment was 2,965,271. The number of voting rights
which affirmatively abstained from voting on the Amendment were 1,141,565.
The number of voting rights which were represented by proxies at said
meeting and which did not vote on the Amendment were 135. The number of
voting rights which were not represented by proxy at the meeting and which
were unvoted was 48,869,953.
V.
The majority of the votes cast by the shareholders entitled to vote at
the meeting of shareholders were voted to adopt said amendment in accordance
with the provisions of the Charter and Section 14-2-191 of the Official Code
of Georgia Annotated.
VI.
The Amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof does not provide for an exchange or cancellation
of any issued shares of the Corporation.
VII.
The Amendment effects no change in the stated capital of the
Corporation.
IN WITNESS WHEREOF, American Family Corporation has caused these
Articles of Amendment to be executed and its corporate seal to be affixed
and has caused the foregoing to be attested, all by its duly authorized
officers, on this 21st day of July, 1986.
AMERICAN FAMILY CORPORATION
By: /s/ Salvador Diaz-Verson, Jr.
--------------------------------
Attest: President
/s/ Louis A. Hazouri, Jr.
- -----------------------------
Secretary
(CORPORATE SEAL)
8
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FAMILY CORPORATION
I.
The name of the corporation is American Family Corporation (hereinafter
referred to as the "CORPORATION").
II.
These Articles of Amendment amend Article IV of the Articles of
Incorporation of the Corporation as follows:
(A) By striking the first sentence in Article IV in its entirety and
substituting in lieu thereof the following:
"The CORPORATION shall have authority to issue Seventy-Five
Million (75,000,000) shares of common stock having a par value
of $.10 per share (the "Common Stock")."
(B) By amending Article IV by adding the provisions set forth below at
the end of the first sentence of the first paragraph:
"The Common Stock shall have the following voting rights:
(a) Except as otherwise provided in paragraph (b) of this
Section (i) every holder of record of the Common Stock shall be
entitled to one (1) vote in person or by proxy on each matter
submitted to a vote at a meeting of shareholders for each share
of the Common Stock held of record by such holder as of the record
date of such meeting.
(b) Notwithstanding paragraph (a) of this Section (i), a
holder of record of a share of the Common Stock, which share
meets one or both of the following criteria, shall be entitled
to ten (10) votes on each matter submitted to a vote at a meeting
of shareholders for each share of the Common Stock so owned by
such holder of record as of the record date of such meeting:
(1) such share of the Common Stock has had the same beneficial
owner since April 22, 1985;
or
(2) such share of the Common Stock has had the same beneficial
owner for a continuous period of greater than 48 months prior
to the record date of such meeting.
(c) For purposes of paragraphs (b) and (e) of this Section
(i), any transferee of a share of the Common Stock where such
share of the Common Stock was transferred by gift, devise,
9
<PAGE>
bequest or otherwise through the law of inheritance, descent or
distribution from the estate of the transferor or to a trust
beneficiary or beneficiaries by a trustee holding such share of
the Common Stock for said beneficiary or benefit of the
beneficiaries of said trust shall be deemed to be the same
"beneficial owner" as the transferor. Additionally, any shares
of Common Stock acquired by the beneficial owner as a direct
result of a stock split, stock dividend or other type of
distribution of shares with respect to existing shares ("dividend
shares") will be deemed to have been acquired and held
continuously from the date on which the shares with regard to
which the dividend shares were issued were acquired.
(d) For purposes of paragraph (b) of this Section (i),
shares of the Common Stock acquired pursuant to a stock option
shall be deemed to have been acquired on the date the option
was granted.
(e) For purposes of paragraph (b) of this Section (i), any
share of the Common Stock held in "street" or "nominee" name shall
be presumed to have been acquired by the beneficial owner
subsequent to April 22, 1985 and to have had the same beneficial
owner for a continuous period of less than 48 months prior to the
record date of the meeting in question. This presumption shall be
rebuttable by presentation to the Company by such beneficial
owner of satisfactory evidence that such share has had the same
beneficial owner continuously since April 22, 1985 or such share
has had the same beneficial owner for a period greater than 48
months prior to the record date of the meeting in question. Any
disputes arising pursuant to this paragraph (e) of this Section
(i) shall be definitively resolved by a determination of the
Board of Directors made in good faith."
(C) By amending Article IV further to insert "(i)" before the first
word of the first paragraph of Article IV, "(ii)" before the first word of
the paragraph beginning "The Corporation shall have authority to issue not
more than 2,300,000 shares...", "(iii)" before the first word of the
paragraph beginning "Except as specifically provided above the Corporation
shall have the full power to purchase and otherwise acquire..." and "(iv)"
before the last paragraph of Article IV."
III.
The amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof was adopted by the shareholders of the
CORPORATION at a meeting duly held on April 22, 1985.
IV.
(a) The vote of the shareholders of the CORPORATION required to adopt
the Amendment to the Articles of Incorporation of the Corporation set forth
in Section II hereof was a majority of all shares of common stock, par value
($.10) per share, of the CORPORATION issued now standing and entitled to
vote, both generally and as a class (said common stock being the only
capital stock of the CORPORATION issued and outstanding).
10
<PAGE>
(b) The number of shares of the Common Stock, par value $.10 per
share, of the CORPORATION issued and outstanding and entitled to vote as of
April 22, 1985, the record date for the meeting of shareholders of the
CORPORATION on April 22, 1985, at which said Amendment was adopted was
19,875,312 shares.
(c) The number of shares of the Common Stock, par value $.10 per
share, of the CORPORATION voting for the said Amendment, voting generally
and as a class, was 14,260,004 shares or 71.7 percent of the shares of such
stock issued and outstanding and entitled to vote, with 1,147,144 shares of
such stock being voted against the Amendment and 4,468,164 shares of such
stock not voting. The number of shares which must be voted to adopt the
amendment is 9,937,657, representing a majority of the issued and
outstanding shares entitled to vote thereon.
V.
The Amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof does not provide for an exchange or cancellation
of any issued shares of the corporation. The extent to which the Amendment
to the Articles of Incorporation set forth in Section II hereof provides for
a reclassification of issued shares of the CORPORATION is set forth in the
Amendment.
VI.
The Amendment to the Articles of Incorporation of the Corporation set
forth in Section II hereof does not effect a change in the stated capital of
the CORPORATION.
AMERICAN FAMILY CORPORATION
By: /s/ John B. Amos
-------------------------------
JOHN B. AMOS
Chairman of the Board and
Chief Executive Officer
(Seal)
Attest:
/s/ George W. Jeter
- -----------------------------
GEORGE W. JETER
Secretary of American Family Corporation
11
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FAMILY CORPORATION
I.
The name of the corporation is American Family Corporation.
II.
The Articles of Incorporation of American Family Corporation are hereby
amended by striking in its entirety the first sentence of Article IV of said
Articles and adding thereto the following new first sentence of Article IV
so that the Articles of Incorporation of American Family Corporation, as
amended, shall read as follows: "The Corporation shall authority to issue
not more than 25,000,000 shares of common stock having a par value of $.10
per share."
III.
On April 23, 1984 the amendment was adopted by the vote of 14,079,909
shares, there being 17,846,550 shares outstanding and entitled to vote
thereon. The vote of a majority of shareholders entitled to vote is
required to amend the Articles of Incorporation.
IV.
The amendment does not provide for an exchange, reclassification or
cancellation of any issued shares of the Corporation.
V.
The amendment does not effect a change in the stated capital of the
Corporation.
12
<PAGE>
VI.
IN WITNESS WHEREOF, American Family Corporation has caused these
Articles of Amendment to be executed and its corporate seal to be affixed
and has caused the foregoing to be attested, all by its duly authorized
officers, on this 24th day of May, 1984.
AMERICAN FAMILY CORPORATION
By: /s/ John B. Amos
-------------------------------
JOHN B. AMOS
Chairman of the Board and
Chief Executive Officer
(Corporate Seal)
Attest:
/s/ George W. Jeter
- -----------------------------
GEORGE W. JETER
Secretary
13
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
AMERICAN FAMILY CORPORATION
(1) The name of the Corporation is American Family Corporation (herein
referred to as the "corporation").
(2) These articles of amendment amend Article IV of the articles of
incorporation of the corporation (A) by changing the first word of the
second paragraph of said Article IV from "The" to "the" and adding at the
beginning of such paragraph before the "the" the words "Except as
specifically provided above," and (B) by adding the provisions set forth
below after the first paragraph of said Article IV and before the second
paragraph of said Article IV:
The corporation shall have authority to issue not more than
2,300,000 shares of nonvoting cumulative preferred stock having
a par value of $12.75 per share upon the following terms and
conditions.
(a) If issued, the preferred stock of the corporation
authorized herein may be issued only in one series on a single
date (the "issuance date"). The shares of such series shall be
designated "Nonvoting Cumulative Preferred Stock, 1980 Series,"
with the year of the issuance date to be inserted in the title
(hereinafter called the "preferred stock"). After the issuance
date, no additional shares of the preferred stock shall be
issued.
(b) The holders of the preferred stock shall be entitled
to receive, when, as and if declared by the Board of Directors
of the corporation, out of the earnings and other funds and
assets of the corporation legally available for the payment of
cash dividends, cash dividends at the annual rates of $.90 per
share for the first 5 years, $2.20 per share for the 6th year,
$2.60 per share for the 7th year, $3.69 per share for the 8th
year, $4.36 per share for the 9th year, and $5.18 per share for
the 10th and subsequent years. The years for which the
aforesaid annual dividend rates shall apply shall commence on
the issuance date of the preferred stock and each anniversary
thereof. The dividends shall be payable for each calendar
quarter (ending on the last day of every March, June, September
and December) on the first day of every March, June, September
and December included in such quarter (or, if such date is one
on which the New York Stock Exchange is not open for trading,
then on the next succeeding day on which such exchange is open
for trading) to holders of record of the preferred stock at the
end of the 15th day of the preceding month. The first dividend,
however, shall be payable on the payment date during and for the
first calendar quarter commencing on or after the issuance date,
and shall be in an amount, determined at the initial annual rate
of $.90, for the period from the issuance date until the end of
14
<PAGE>
such first calendar quarter. Cash dividends on the preferred
stock shall commence to accrue and be accumulative from the
issuance date. So long as any shares of the preferred stock
shall remain outstanding, no dividend whatsoever shall be
declared or paid or set apart for any shares of common stock,
par value $.10 per share, of the corporation (hereinafter called
the "common stock") or any other capital stock of the
corporation ranking junior to the preferred stock in payment of
dividends, nor shall any shares of the common stock, the
preferred stock or any other capital stock of the corporation
ranking on a parity with or junior to the preferred stock in
payment of dividends be redeemed or purchased by the corporation
or any subsidiary thereof, nor shall any monies be paid to or
made available for a sinking fund for the redemption or purchase
of any shares of such stock or otherwise applied to such
redemption or purchase, unless in each instance all cash
dividends on all outstanding shares of the preferred stock
through and including the dividend payable on the last quarterly
payment date shall have been paid, or dividends in such amount
shall have been declared and sufficient funds set aside for the
payment thereof; provided, however, that notwithstanding the
foregoing limitation, any monies deposited (not in violation of
the aforesaid limitation at the time of deposit) in any sinking
fund in compliance with the provisions of such sinking fund may
thereafter be applied to the purchase or redemption of stock in
accordance with the terms of the sinking fund; and provided
further, that notwithstanding the foregoing limitation,
dividends payable solely in shares of the common stock may be
paid upon shares of the common stock. For purposes of this
paragraph (b), no share of the preferred stock shall be deemed
to be issued or outstanding at any time at which it is held by
or for the account of the corporation, but the same shall be
deemed to be issued and outstanding if held by or for the
account of a subsidiary of the corporation. Accumulation of
dividends on the preferred stock shall not bear interest.
(c) At any time or from time to time after the 5th
anniversary of the issuance date, the corporation may call for
and require the redemption of all or any portion of the
outstanding shares of the preferred stock effective in each case
as of a date (the "redemption date") after the 5th anniversary
of the issuance date. Such action must be authorized by
resolution of the Board of Directors, and if less than all
outstanding shares of the preferred stock are to be redeemed,
the particular shares to be redeemed shall be chosen by
allocation among the respective holders of the shares of the
preferred stock pro rata or substantially pro rata as may be
determined by resolution of the Board of Directors. The
corporation may, however, exclude from any redemption, to the
extent set forth in a resolution of the Board of Directors of
the corporation any or all shares of the preferred stock held by
or for the account of the corporation or any subsidiary of the
corporation. Written notice of the redemption and of any change
in the shares to be redeemed or the allocation thereof among
holders thereof shall be given by first class mail, postage
prepaid, at least 30 but not more than 90 days prior to the
redemption date to each record holder of the preferred stock at
15
<PAGE>
such holder's address as it shall appear on the stock records of
the corporation. Notice so mailed shall be conclusively
presumed to have been duly given whether or not actually
received. The redemption price shall be $14.00 per share,
together within each case an amount equal to any dividend
arrearages on the preferred stock payable but undeclared or
unpaid prior to the redemption date plus a pro rata (based on a
30 day month and a 360 day year) accrual in respect of preferred
stock dividends, if any, not yet payable as of the redemption
date but accruing for the period from the end of the last full
calendar quarter (ending the last day of March, June, September
or December) to the redemption date. On and after the date
fixed on any notice of redemption as the date of redemption, and
if funds sufficient to redeem such shares have been irrevocably
set aside, all rights of holders of the preferred stock to be
redeemed as stockholders of the corporation shall cease and
terminate, except the right to receive the redemption price,
without interest, as provided herein. Alternatively, if the
corporation shall so elect, on and after a date, which shall be
the redemption date or any date prior therein but not earlier
than the 5th anniversary of the issuance date and which shall be
the later of (i) the date on which written notice of redemption
is mailed to holders of the preferred stock as provided above
and (ii) the date on which funds sufficient in amount to pay on
the redemption date the aggregate redemption price (determined
as provided above as of the redemption date) have been deposited
with a commercial bank in the United States duly designated as
paying agent by the corporation by resolution of its board of
directors (provided the notice of redemption shall state the
name and address of such paying agent and the intention of the
corporation to deposit said funds on or before the redemption
date with the paying agent or the fact of such deposit), all
rights of holders of the preferred stock to be redeemed as
stockholders of the corporation shall cease and terminate, except
the right to receive the redemption price, without interest, as
provided herein. Any monies so deposited with a paying agent
which shall be unclaimed by holders of the preferred stock so
called for redemption at the end of a period, not less than one
full year after the redemption date, designated by the
corporation by resolution of its board of directors, shall be
paid by the paying agent to the corporation, and thereafter the
holders of the preferred stock called for redemption shall look
only to the corporation for payment thereof, without interest.
On and after the date fixed in any notice as the date of
redemption, the respective holders of record of the preferred
stock shall be entitled to receive the redemption price, without
interest, upon actual delivery to the corporation or to the duly
designated paying agent of certificates for the shares to be
redeemed, each such certificate, if required by the corporation,
to be duly endorsed in blank or accompanied by proper
instruments of assignment and transfer thereof duly executed in
blank. In the event the corporation shall fail to set aside
irrevocably (by deposit with a paying agent or otherwise) prior
to the redemption date sufficient funds to make, or shall
default in making, redemption payments for preferred stock which
has been called for redemption, until such failure or default
shall be cured through irrevocable set aside (by deposit with a
16
<PAGE>
paying agent or otherwise) or payment or tender of payment to
all remaining holders of preferred stock called for redemption
of the redemption price, which price shall in the event of such
failure or default include the amount of dividends which are
payable but undeclared or unpaid or have accrued through the
date of such irrevocable set aside, payment or tender of payment
curing such failure or default (determined in the same manner as
provided above with respect to dividends through the redemption
date), no dividend whatsoever shall be declared or paid or set
apart for the common stock or any other capital stock of the
corporation ranking junior to the preferred stock in payment of
dividends, nor shall any shares of the common stock, the
preferred stock or any other capital stock of the corporation
ranking on a parity with or junior to the preferred stock in
payment of dividends be redeemed or purchased by the corporation
or any subsidiary thereof, nor shall any monies be paid to or
made available for a sinking fund for the redemption or purchase
of any shares of such stock or otherwise applied to such
redemption or purchase; provided, however, that notwithstanding
the foregoing limitation, any monies deposited (not in violation
of the aforesaid limitation at the time of deposit) in any
sinking fund in compliance with the provisions of such sinking
fund may thereafter be applied to the purchase or redemption of
stock in accordance with the terms of the sinking fund; and
provided further, that notwithstanding the foregoing limitation,
dividends payable solely in shares of the common stock may be
paid upon shares of the common stock. A holder of the preferred
stock shall not have any right to cause the corporation to
redeem any shares of the preferred stock.
(d) in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation, the
holders of the preferred stock then outstanding shall be
entitled to receive out of the assets of the corporation
available for distribution to holders of its capital stock,
whether from capital, surplus or earnings of any nature, before
any payment shall be made to holders of the common stock or any
other capital stock of the corporation ranking junior to the
preferred stock as to distribution on liquidations, an amount
equal to $12.75 per share together with in each case an amount
equal to any dividend arrearages on the preferred stock payable
but undeclared or unpaid plus a pro rata (based on a 30 day
month and a 360 days year) accrual in respect of preferred stock
dividends not yet payable as of the payment date but accruing
for the period from the end of the last full calendar quarter
(ending on the last day of March, June, September, or December)
to the payment date. If the assets of the corporation available
for distribution upon liquidation, dissolution or winding up of
the corporation to the holders of the preferred stock and any
other capital stock of the corporation ranking on a parity with
the preferred stock as to distributions on liquidation upon the
liquidation are insufficient to pay the holders thereof the full
amounts to which they are entitled in such event, such holders
shall share ratably in the assets which are so available.
Holders of the preferred stock shall not be entitled to any
further participation in the assets of the corporation upon its
liquidation, dissolution or winding up. Written notice of any
17
<PAGE>
voluntary or involuntary liquidation, dissolution or winding up
of the corporation within the meaning of this paragraph (d),
stating a payment date and the place where the distributable
amounts shall be payable, shall be given by first-class mail,
postage prepaid, at least 30 but not more than 90 days prior to
the payment date stated therein to each record holder of the
preferred stock at such holder's address as it shall appear on
the stock records of the corporation. Notice so mailed shall be
conclusively presumed to have been duly given whether or not
actually received. Neither the sale, transfer or exchange of
all or substantially all the assets of the corporation, nor the
merger or consolidation of the corporation with or into any
other company, nor the sale, transfer or exchange of all or
substantially all the assets of the corporation in exchange for
securities of another corporation, followed by liquidation of
the corporation and the distribution of such securities to the
holders of the capital stock of this corporation, shall be
deemed to be a liquidation, dissolution or winding up of the
corporation within the meaning of this paragraph (d).
(e) Except as may be required by Georgia law and as set
forth in paragraph (h) hereof, the holders of the preferred
stock shall have no voting rights whatsoever in respect of the
affairs of the corporation.
(f) The holders of the preferred stock shall have no
rights whatsoever to convert their shares of preferred stock
into shares of the common stock or shares of any other stock or
other securities of the corporation.
(g) Any shares of the preferred stock redeemed, purchased
or otherwise acquired by the corporation shall not be reissued
or otherwise disposed of. The foregoing sentence does not apply
to shares of the preferred stock purchased or otherwise acquired
by a subsidiary of the corporation. The corporation may from
time to time cause any or all shares of the preferred stock
which has been redeemed, purchased or otherwise acquired by the
corporation to be retired in the manner provided by law.
(h) Except as may be provided by amendment to the articles
of incorporation of the corporation approved by holders of a
majority of the outstanding shares of the preferred stock voting
as a class, the common stock and all other common or preferred
capital stock of the corporation shall be junior to the
preferred stock as to dividends and amounts distributable on
liquidation, dissolution or winding up of the corporation, as
provided in paragraphs (b) and (d) hereof, and the holders of
the preferred stock shall be entitled to receive payments of all
dividends payable (including any arrearages of cumulative
dividends) or of all amounts distributable on liquidation with
respect to the preferred stock, as the case may be, before or in
preference and priority to any such payments with respect to any
other capital stock of the corporation. The shares of the
preferred stock shall not be subject to the operation of or to
the benefit of any retirement or sinking fund. The shares of
the preferred stock shall not have any relative, participating,
optional or other special rights and powers other than as set
18
<PAGE>
forth herein. For purposes of paragraphs (b), (c) and (g)
hereof, the term "subsidiary" shall mean any company owned
directly or indirectly 50% or more by the corporation.
(3) The amendment to the articles of incorporation of the corporation
set forth in section (2) hereof was adopted by the stockholders of the
corporation at a meeting duly held on September 22, 1980.
(4)(a) The vote of the stockholders of the corporation required to
adopt the amendment to the articles of incorporation of the corporation set
forth in section (2) hereof was a majority of all shares of common stock,
par value $.10 per share, of the corporation issued and outstanding and
entitled to vote, both generally and as a class (said common stock being the
only capital stock of the corporation issued and outstanding). (b) The
number of shares of the common stock, par value $.10 per share, of the
corporation issued and outstanding and entitled to vote as of August 15,
1980, the record date for the meeting of stockholders of the corporation on
September 22, 1980, at which said amendment was adopted, was 12,156,676
shares (excluding 96,600 treasury shares not entitled to vote). (c) The
number of shares of the common stock, par value $.10 per share, of the
corporation voted for the said amendment, voting generally and as a class,
was 7,428,203 shares or 60.09% of the shares of such stock issued and
outstanding and entitled to vote, with 135,404 shares of such stock being
voted against the amendment and 4,728,473 shares of such stock not voting.
(5) The amendment to the articles of incorporation of the corporation
set forth in section (2) hereof does not provide for an exchange,
reclassification or cancellation of any issued shares of the corporation.
(6) The amendment to the articles of incorporation of the corporation
set forth in section (2) hereof does not effect a change in the stated
capital of the corporation.
AMERICAN FAMILY CORPORATION
(Seal)
By: /s/ John B. Amos
--------------------------------
Attest: JOHN B. AMOS
Chairman of the Board and Chief
Executive Officer
/s/ George W. Jeter American Family Corporation
- -----------------------------
GEORGE W. JETER
Secretary
American Family Corporation
19
<PAGE>
ARTICLES OF AMENDMENT
OF CORPORATE CHARTER OF
AMERICAN FAMILY CORPORATION
The shareholders of American Family Corporation, a corporation
organized and existing under the laws of the State of Georgia, did on April
25, 1977, adopt the following resolution:
"RESOLVED, that the first sentence of Article 4 of the Articles
of Incorporation of American Family Corporation shall be amended
to read as follows: 'The corporation shall have authority to
issue not more than 20,000,000 shares of common stock having a
par value of $.10 per share.' Said Articles of Incorporation
are hereby amended by deleting from Article 4 the first sentence
as follows: 'The corporation shall have authority to issue not
more than 12,500,000 shares of common stock having a par value
of $.10 per share.' and inserting in lieu thereof, the following:
'The corporation shall have authority to issue not more than
20,000,000 shares of common stock having a par value of $.10 per
share.' Said Article 4 as amended and restated is as follows:
'The corporation shall have authority to issue not more than
20,000,000 shares of common stock having a par value of $.10 per
share.
The corporation shall have the full power to purchase and
otherwise acquire and dispose of, its own shares and securities
granted by the laws of the State of Georgia and shall have the
right to purchase its shares out of its unreserved and
unrestricted capital surplus available therefor, as well as out
of its unreserved and unrestricted earned surplus available
therefor.
The Board of Directors may from time to time distribute to
shareholders out of capital surplus of the corporation a portion
of its assets in cash or in property.'"
Said amendment was adopted by the vote of the holders of 6,082,910
shares out of a total of 9,309,673 shares eligible to vote of which
6,225,817 shares were represented at said meeting in person or by proxy. A
majority of the shareholders voted to adopt said amendment in accordance
with the provisions of the charter and Section 22-902 of the Georgia Code
Annotated. The amendment does not provide for an exchange, reclassification
or cancellation of issued shares. The amendment does not effect a change in
the amount of stated capital.
IN WITNESS WHEREOF, American Family Corporation has caused these
Articles of Amendment to be executed and its corporate seal to be affixed
and has caused the foregoing to be attested all by its duly authorized
officers on this 16th day of September, 1977.
AMERICAN FAMILY CORPORATION
By: /s/ John B. Amos
--------------------------------
John B. Amos, President
Attest: /s/ Frances B. King
----------------------------
Asst. Secretary
(SEAL)
20
<PAGE>
ARTICLES OF INCORPORATION
I.
The name of the corporation is:
American Family Corporation
II.
The corporation shall have perpetual duration.
III.
The corporation is organized for the following purposes:
To purchase, own and hold the stock of other corporations,
and to direct the operations of other corporations through the ownership of
stock therein, to purchase, subscribe for, acquire, own, hold, sell,
exchange, assign, transfer, create security interests in, pledge, or
otherwise dispose of shares or voting trust certificates for shares of the
capital stock, or any bonds, notes, securities, or evidences of indebtedness
created by any other corporation or corporations organized under the laws of
this state or any other state or district or country, nation or government,
including without limitation insurance companies, insurance agencies and
other businesses related to insurance, and also bonds or evidences of
indebtedness of the United States or of any state, district, territory,
dependency or country or subdivision or municipality thereof; to issue in
exchange therefor shares of the capital stock, bonds, notes, or other
obligations of this corporation and while the owner thereof to exercise all
the rights, powers, and privileges of ownership including the right to vote
any shares of stock or voting trust certificates so owned, to promote, lend
money to, and guarantee the dividends, stocks, bonds, notes, evidences of
indebtedness, contracts, or other obligations of, and otherwise aid in any
manner which shall be lawful, any corporation or association of which any
bonds, stocks, voting trust certificates, or other securities or evidences
of indebtedness shall be held by or for this corporation, or in which, or in
the welfare of which, the corporation shall have any interest, to do any
acts and things permitted by law and designed to protect, preserve, improve,
or enhance the value of any such bonds, stocks, or other securities or
evidences of indebtedness or the property of this corporation, and to
generally engage in the business of and to act as a holding company.
To do each and every thing necessary, suitable or proper
for the accomplishment of any of the purposes or the attainment of any one
or more of the objects herein enumerated, or which shall at any time appear
conducive to or expedient for the protection or benefit of the corporation.
IN FURTHERANCE OF AND NOT IN LIMITATION of the general
powers conferred by the laws of the State of Georgia and the objects and
purposes herein set forth, it is expressly provided that to such extent as a
corporation organized under the Georgia Business Corporation Code may now or
hereafter lawfully do, the corporation shall have power to do, either as
21
<PAGE>
principal or agent and either alone or in connection with other
corporations, firms or individuals, all and everything necessary, suitable,
convenient or proper for, or in connection with, or incident to, the
accomplishments of any of the purposes or the attainment of any one or more
of the objects herein enumerated, or designed directly or indirectly to
promote the interests of the corporation or to enhance the value of its
properties; and in general to do any and all things and exercise any and all
powers, rights and privileges which a corporation may now or hereafter be
authorized to do or to exercise under the Georgia Business Corporation Code
or under any act amendatory thereof, supplemental thereto or substituted
therefor.
The foregoing provisions of this Article III shall be
construed both as purposes and powers and each as an independent purpose and
power. The foregoing enumeration of specific purposes and powers herein
specified shall, except when otherwise provided in this Article III, be in
no wise limited or restricted by reference to, or inference from the terms
of any provision of this or any other Article of these Articles of
Incorporation.
IV.
The corporation shall have authority to issue not more than
12,500,000 shares of common stock having a par value of $.10 per share.
The corporation shall have the full power to purchase and
otherwise acquire, and dispose of, its own shares and securities granted by
the laws of the State of Georgia and shall have the right to purchase its
shares out of its unreserved and unrestricted capital surplus available
therefor, as well as out of its unreserved and unrestricted earned surplus
available therefor.
The Board of Directors may from time to time distribute to
shareholders out of capital surplus of the corporation a portion of its
assets, in cash or in property.
V.
The corporation shall have the power to create and issue,
whether or not in connection with the issuance and sale of any of its shares
or other securities, rights or options entitling the holders thereof to
purchase from the corporation, for such consideration and upon such terms
and conditions as may be fixed by the Board of Directors, shares of any
class or series of the corporation, whether authorized but unissued shares
or treasury shares; provided that the price or prices so fixed by the Board
of Directors for shares so issued shall not be less than the par value of
the said shares.
VI.
None of the holders of any stock or other securities of the
corporation of any kind, class or series now or hereafter authorized shall
have pre-emptive rights with respect to any shares of capital stock or other
securities of the corporation, of any kind, class or series now or hereafter
authorized.
22
<PAGE>
VII.
The initial registered office of the corporation shall be
at 1932 Wynnton Road, Columbus, Georgia. The initial registered agent of
the corporation shall be George W. Jeter.
VIII.
The initial Board of Directors shall consist of eighteen
members, who shall be as follows:
(1) John B. Amos (10) Hashem Naraghi
1932 Wynnton Road P. O. Box 7
Columbus, Georgia 31906 Escalon, California 95320
(2) William L. Amos (11) John M. Pope
1932 Wynnton Road P. O. Box 786
Columbus, Georgia 31906 Americus, Georgia 31709
(3) James Graham (12) Norman Reitman
1932 Wynnton Road 1 Rockefeller Plaza
Columbus, Georgia 31906 New York, New York 10020
(4) G. Othell Hand, Th.D. (13) Jack S. Schiffman
1660 Flournoy Drive 1363 - 13th Street
Columbus, Georgia 31906 Columbus, Georgia 31901
(5) Louis A. Hazouri, M.D. (14) Henry C. Schwob
P. O. Box 5196 P. O. Box 1300
Columbus, Georgia 31906 Columbus, Georgia 31902
(6) Elmer Loftin (15) J. Kyle Spencer
P. O. Box 151 P. O. Box 2847
Manchester, Georgia Columbus, Georgia 31902
(7) John P. McGoff (16) J. R. Thompson
P. O. Box 1860 1932 Wynnton Road
East Lansing, Michigan 48823 Columbus, Georgia 31906
(8) Mark T. McKee (17) Floyd Davis Wade
580 Oxford Road P. O. Box 149
Oxford, Connecticut 06483 Douglas, Georgia 31533
(9) Gordon L. Mullis (18) Joe M. Webber, M.D.
P. O. Box 345 1932 Wynnton Road
Camilla, Georgia 31730 Columbus, Georgia 31906
IX.
The names and addresses of the incorporators are:
John B. Amos W. L. Amos J. R. Thompson
1932 Wynnton Road 1932 Wynnton Road 1932 Wynnton Road
Columbus, Georgia 31906 Columbus, Georgia 31906 Columbus, Georgia 31906
23
<PAGE>
X.
The corporation shall not commence business until it shall
have received not less than $500.00 in payment for the issuance of shares of
stock.
IN WITNESS WHEREOF, the undersigned executed these Articles
of Incorporation.
/s/ John B. Amos
------------------------------
JOHN B. AMOS
/s/ W. L. Amos
------------------------------
W. L. AMOS
/s/ J. T. Thompson
------------------------------
J. R. THOMPSON
24
<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
period ended March 31, 1997, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 19,535,132
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 137,044
<MORTGAGE> 16,772
<REAL-ESTATE> 0
<TOTAL-INVEST> 20,649,252
<CASH> 9,698
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,517,646
<TOTAL-ASSETS> 27,107,769
<POLICY-LOSSES> 19,078,960
<UNEARNED-PREMIUMS> 279,398
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 191,436
<NOTES-PAYABLE> 496,153
0
0
<COMMON> 15,735
<OTHER-SE> 2,281,321
<TOTAL-LIABILITY-AND-EQUITY> 27,107,769
1,436,087
<INVESTMENT-INCOME> 251,629
<INVESTMENT-GAINS> (443)
<OTHER-INCOME> 20,270
<BENEFITS> 1,187,069
<UNDERWRITING-AMORTIZATION> 41,662
<UNDERWRITING-OTHER> 329,693
<INCOME-PRETAX> 149,119
<INCOME-TAX> 58,962
<INCOME-CONTINUING> 90,157
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,157
<EPS-PRIMARY> .64
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
