Form 8-K AFLAC INC For: Jul 25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 25, 2019
Aflac Incorporated
_________________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Georgia | 001-07434 | 58-1167100 | ||
(State or other jurisdiction | (Commission | (IRS Employer | ||
of incorporation) | File Number) | Identification No.) | ||
1932 Wynnton Road, Columbus, Georgia | 31999 | |||
(Address of principal executive offices) | (Zip Code) | |||
706.323.3431
_________________________________________________________________________________________________________________________________________________________
(Registrant’s telephone number, including area code)
_________________________________________________________________________________________________________________________________________________________
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $.10 Par Value | AFL | New York Stock Exchange | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 Results of Operations and Financial Condition.
Aflac Incorporated is furnishing its press release dated July 25, 2019 in which it reported its 2019 second quarter results herein as Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information included or incorporated in this report (Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be set forth by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
99.1 - Press release of Aflac Incorporated dated July 25, 2019
1
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 hereunto duly authorized.
Aflac Incorporated | ||||
July 25, 2019 | /s/ June Howard | |||
(June Howard) | ||||
Senior Vice President, Financial Services | ||||
Chief Accounting Officer | ||||
2
EXHIBIT INDEX:
99.1 - Press release of Aflac Incorporated dated July 25, 2019
3
News Release
FOR IMMEDIATE RELEASE
Aflac Incorporated Announces Second Quarter Results,
Reports Second Quarter Net Earnings of $817 Million,
Affirms 2019 Adjusted EPS Outlook,
Declares Third Quarter Cash Dividend
COLUMBUS, Ga. - July 25, 2019 - Aflac Incorporated (NYSE: AFL) today reported its second quarter results.
Total revenues were $5.5 billion during the second quarter of 2019, compared with $5.6 billion in the second quarter of 2018. Net earnings were $817 million, or $1.09 per diluted share, compared with $832 million, or $1.07 per diluted share a year ago.
Net earnings in the second quarter of 2019 included pretax net realized investment losses of $33 million, or $0.04 per diluted share, compared with pretax net gains of $35 million, or $0.04 per diluted share a year ago. Included in those net losses were $2 million of losses related to impairments and loan loss reserve changes. Pretax net realized losses also included $11 million in losses from changes in the fair value of equity securities and $45 million of losses from certain derivatives and foreign currency activities, as well as a $25 million gain from sales and redemptions.
The average yen/dollar exchange rate* in the second quarter of 2019 was 109.94, or 0.7% weaker than the average rate of 109.14 in the second quarter of 2018. For the first six months, the average exchange rate was 110.09, or 1.3% weaker than the rate of 108.61 a year ago.
Adjusted earnings* in the second quarter were $846 million, compared with $835 million in the second quarter of 2018. Adjusted earnings included $12 million of pretax variable investment income on alternative investments, which was $9 million above expectations. Adjusted earnings per diluted share* increased 5.6% to $1.13 in the quarter. The weaker yen/dollar exchange rate impacted adjusted earnings per diluted share by $0.01. Adjusted earnings per diluted share excluding the impact of foreign currency* increased 6.5% to $1.14.
For the first six months of 2019, total revenues were up 1.0% to $11.2 billion, compared with $11.1 billion in the first half of 2018. Net earnings were $1.7 billion, or $2.32 per diluted share, compared with $1.6 billion, or $1.98 per diluted share, for the first six months of 2018. Adjusted earnings for the first half of 2019 were $1.7 billion, or $2.25 per diluted share, compared with $1.7 billion, or $2.12 per diluted share, in 2018. Adjusted earnings included $18 million of variable investment income on alternative investments, which was $13 million above expectations. Excluding the negative impact of $0.02 per share from the weaker yen/dollar exchange rate, adjusted earnings per diluted share increased 7.1% for the first six months of 2019.
Total investments and cash at the end of June 2019 were $136.6 billion, compared with $127.9 billion at June 30, 2018. In the second quarter, Aflac Incorporated repurchased $357 million, or 6.9 million of its common shares. At the end of June, the company had 51.9 million remaining shares authorized for repurchase.
Shareholders’ equity was $28.2 billion, or $38.14 per share, at June 30, 2019, compared with $23.8 billion, or $30.94 per share, at June 30, 2018. Shareholders’ equity at the end of the second quarter included a net unrealized gain on investment securities and derivatives of $8.0 billion, compared with a net unrealized gain of $4.8 billion at June 30, 2018. Shareholders’ equity at the end of the second quarter also included an unrealized foreign currency translation loss of $1.5 billion, compared with an unrealized foreign currency translation loss of $1.8 billion at June 30, 2018. The annualized return on average shareholders’ equity in the second quarter was 12.0%.
Shareholders’ equity excluding AOCI* was $21.9 billion, or $29.54 per share at June 30, 2019, compared with $20.9 billion, or $27.23 per share, at June 30, 2018. The annualized adjusted return on equity excluding foreign currency impact* in the second quarter was 15.7%.
AFLAC JAPAN
In yen terms, Aflac Japan's net premium income was ¥348.6 billion for the quarter, or 0.9% lower than a year ago, mainly due to limited-pay products reaching paid-up status. Net investment income, net of amortized hedge costs, increased 0.8% to ¥66.7 billion, primarily driven by increased investments in dollar-denominated floating rate assets and higher variable investment income. Total revenues in yen declined 0.7% to ¥416.5 billion. Pretax adjusted earnings in yen for the quarter decreased 0.1% on a reported basis and 0.4% on a currency-neutral basis. The pretax adjusted profit margin for the Japan segment was 21.9%, compared with 21.8% a year ago, with both periods benefiting, in part, from a shift in mix from first to third sector and favorable claims trends in third sector business.
For the first six months, premium income in yen was ¥699.0 billion, or 0.9% lower than a year ago. Net investment income, net of amortized hedge costs, increased 3.1% to ¥133.8 billion. Total revenues in yen were down 0.3% to ¥835.3 billion. Pretax adjusted earnings were ¥183.1 billion, or 1.9% higher than a year ago.
In dollar terms, net premium income decreased 1.7% to $3.2 billion in the second quarter. Net investment income, net of amortized hedge costs, increased 0.5% to $609 million. Total revenues declined by 1.4% to $3.8 billion. Pretax adjusted earnings declined 0.6% to $831 million.
For the first six months, premium income in dollars was $6.4 billion, or 2.1% lower than a year ago. Net investment income, net of amortized hedge costs, increased 2.1% to $1.2 billion. Total revenues were down 1.5% to $7.6 billion. Pretax adjusted earnings were $1.7 billion, or 0.7% higher than a year ago.
For the quarter, new annualized premium sales (sales) for protection-type first sector and third sector products decreased 17.3% to ¥23.5 billion, and total sales decreased 17.6% to ¥23.9 billion, or $218 million. Comparable results reflect a strong 2018 second quarter driven by the launch of Aflac Japan's refreshed cancer product.
For the first six months, sales for protection-type first sector and third sector products decreased 11.0% to ¥41.9 billion, and total sales decreased 11.4% to ¥42.7 billion, or $388 million.
AFLAC U.S.
Aflac U.S. net premium income rose 2.3% to $1.5 billion in the second quarter. Net investment income decreased 1.1% to $180 million. Total revenues were up 1.9% to $1.6 billion. Pretax adjusted earnings were $338 million, 0.6% lower than a year ago, driven by higher anticipated expenses in the quarter and partially offset by an improvement in the benefit ratio. The pretax adjusted profit margin for the U.S. segment was 20.6%, compared with 21.1% a year ago.
For the first six months, premium income rose 2.3% to $2.9 billion. Net investment income remained flat at $357 million. Total revenues were up 2.1% to $3.3 billion. Pretax adjusted earnings were $661 million, 2.4% lower than a year ago.
Aflac U.S. sales decreased 2.0% in the quarter to $362 million. For the first half of the year, total new sales decreased 0.3% to $702 million.
CORPORATE AND OTHER
For the quarter, total revenue increased 11.8% to $95 million, reflecting net investment income of $40 million and lower corporate expenses. Net investment income, which increased $13 million, benefited from a $20 million pretax contribution from the company’s corporate yen hedging program. Pretax adjusted earnings were a loss of $26 million, compared with a loss of $38 million a year ago.
For the first six months of the year, total revenue increased 15.9% to $190 million, reflecting net investment income of $82 million. Net investment income, which increased $34 million, benefited from a $40 million pretax contribution from the company's corporate yen hedging program. Pretax adjusted earnings were a loss of $45 million, compared with a loss of $84 million a year ago.
DIVIDEND
The board of directors declared the third quarter dividend of $0.27 per share, payable on September 3, 2019 to shareholders of record at the close of business on August 21, 2019.
OUTLOOK
Commenting on the company’s results, Chairman and Chief Executive Officer Daniel P. Amos stated: “While I am pleased with the company’s overall financial results and our path toward achieving our annual objectives, we remain focused on investing and executing on initiatives designed to drive future earned premium growth both in the U.S. and Japan.
"Aflac Japan, our largest earnings contributor, generated solid financial results that were in line with our expectations for the quarter and first half of the year. In yen terms, results on an adjusted basis were better than expected for the quarter, resulting primarily from strong investment income and improved benefit ratios. Sales of protection-type first sector and third sector products were down in the first half of the year as expected due to the successful launch of our refreshed cancer product in the second quarter of 2018. We continue to expect Aflac Japan to deliver solid results in 2019 with protection-type first and third sector earned premium growth of 1% to 2%.
“Turning to our U.S. operations, we are pleased with the financial performance of Aflac U.S. in the quarter, which is particularly significant because these results also reflect ongoing investment in our platform, distribution and customer experience. While our sales results were less than we expected for the quarter, keep in mind, our production tends to be skewed toward the fourth quarter. We continue to expect Aflac U.S. to deliver solid results in 2019 with earned premium growth of 2% to 3%.
"Earlier this month, we entered into an agreement to acquire Argus Holdings, LLC and its subsidiary Argus Dental & Vision, Inc., a premier benefits management organization and national network dental and vision company. Tampa, Fla. will serve as the home for the Aflac U.S. Network Dental and Vision platform. While a modest commitment of capital, we expect the acquisition and associated build of Aflac’s Network Dental and Vision platform will open the door to greater sales growth, improved account penetration and distribution productivity.
"We remain committed to maintaining strong capital ratios on behalf of our policyholders and balancing our financial strength with reinvesting in our business, increasing the dividend, and repurchasing shares. Our dividend track record is supported by the strength of our capital and cash flows. We continue to anticipate that we’ll repurchase in the range of $1.3 to $1.7 billion of our shares in 2019, with the range allowing us to be more tactical in our deployment strategy. As is always the case, this assumes stable capital conditions and the absence of compelling alternatives. At the same time, we recognize that prudent investment in our platform is critical to our growth strategy and driving efficiencies that will impact the bottom line for the long term.
"I want to reiterate our 2019 earnings guidance. Our consistent, solid results in the first half of the year benefited from timing of expenses and a modestly favorable effective tax rate in the period, which puts us on track to produce adjusted earnings per diluted share toward the higher end of the range of $4.10 to $4.30, assuming the 2018 weighted-average exchange rate of 110.39 yen to the dollar. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders."
*See Non-U.S. GAAP Financial Measures section for an explanation of foreign exchange and its impact on the financial statements and definitions of the non-U.S. GAAP financial measures used in this earnings release, as well as a reconciliation of such non-U.S. GAAP financial measures to the most comparable U.S. GAAP financial measures.
About Aflac Incorporated
Aflac Incorporated (NYSE: AFL) is a Fortune 500 company, helping provide protection to more than 50 million people through its subsidiaries in Japan and the U.S., where it is a leading supplemental insurer by paying cash fast when policyholders get sick or injured. For more than six decades, insurance policies of Aflac Incorporated’s subsidiaries have given policyholders the opportunity to focus on recovery, not financial stress. Aflac Life Insurance Japan is the leading provider of medical and cancer insurance in Japan where it insures 1 in 4 households. Through its trailblazing One Day PaySM initiative in the United States, for eligible claims, Aflac can process, approve and electronically send funds to claimants for quick access to cash in just one business day. For 13 consecutive years, Aflac has been recognized by Ethisphere as one of the World's Most Ethical Companies. In 2018, Fortune magazine recognized Aflac as one of the 100 Best Companies to Work for in America for the 20th consecutive year and in 2019 Fortune included Aflac on its list of World’s Most Admired Companies for the 18th time.
To find out more about One Day PaySM and learn how to get help with expenses health insurance doesn’t cover, get to know us at aflac.com.
Aflac herein means American Family Life Assurance Company of Columbus and American Family Life Assurance Company of New York.
A copy of Aflac’s Financial Analysts Briefing (FAB) supplement for the quarter can be found on the “Investors” page at aflac.com.
Aflac Incorporated will webcast its quarterly conference call via the “Investors” page of aflac.com at 9:00 a.m. (ET) on Friday, July 26, 2019.
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT | |||||||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) | |||||||||||
THREE MONTHS ENDED JUNE 30, | 2019 | 2018 | % Change | ||||||||
Total revenues | $ | 5,511 | $ | 5,589 | (1.4 | )% | |||||
Benefits and claims, net | 2,964 | 3,031 | (2.2 | ) | |||||||
Total acquisition and operating expenses | 1,438 | 1,427 | 0.8 | ||||||||
Earnings before income taxes | 1,109 | 1,131 | (1.9 | ) | |||||||
Income taxes | 292 | 299 | |||||||||
Net earnings | $ | 817 | $ | 832 | (1.8 | )% | |||||
Net earnings per share – basic | $ | 1.10 | $ | 1.08 | 1.9 | % | |||||
Net earnings per share – diluted | 1.09 | 1.07 | 1.9 | ||||||||
Shares used to compute earnings per share (000): | |||||||||||
Basic | 745,153 | 772,949 | (3.6 | )% | |||||||
Diluted | 748,849 | 777,807 | (3.7 | ) | |||||||
Dividends paid per share | $ | 0.27 | $ | 0.26 | 3.8 | % | |||||
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT | |||||||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) | |||||||||||
SIX MONTHS ENDED JUNE 30, | 2019 | 2018 | % Change | ||||||||
Total revenues | $ | 11,168 | $ | 11,054 | 1.0 | % | |||||
Benefits and claims, net | 5,932 | 6,073 | (2.3 | ) | |||||||
Total acquisition and operating expenses | 2,885 | 2,867 | 0.6 | ||||||||
Earnings before income taxes | 2,351 | 2,114 | 11.2 | ||||||||
Income taxes | 606 | 564 | |||||||||
Net earnings | $ | 1,745 | $ | 1,550 | 12.6 | % | |||||
Net earnings per share – basic | $ | 2.33 | $ | 2.00 | 16.5 | % | |||||
Net earnings per share – diluted | 2.32 | 1.98 | 17.2 | ||||||||
Shares used to compute earnings per share (000): | |||||||||||
Basic | 748,271 | 775,734 | (3.5 | )% | |||||||
Diluted | 752,302 | 780,814 | (3.7 | ) | |||||||
Dividends paid per share | $ | 0.54 | $ | 0.52 | 3.8 | % | |||||
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET | |||||||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AMOUNTS) | |||||||||||
JUNE 30, | 2019 | 2018 | % Change | ||||||||
Assets: | |||||||||||
Total investments and cash | $ | 136,597 | $ | 127,921 | 6.8 | % | |||||
Deferred policy acquisition costs | 10,128 | 9,740 | 4.0 | ||||||||
Other assets | 4,675 | 4,325 | 8.1 | ||||||||
Total assets | $ | 151,400 | $ | 141,986 | 6.6 | % | |||||
Liabilities and shareholders’ equity: | |||||||||||
Policy liabilities | $ | 106,989 | $ | 102,310 | 4.6 | % | |||||
Notes payable | 6,231 | 5,315 | 17.2 | ||||||||
Other liabilities | 9,939 | 10,561 | (5.9 | ) | |||||||
Shareholders’ equity | 28,241 | 23,800 | 18.7 | ||||||||
Total liabilities and shareholders’ equity | $ | 151,400 | $ | 141,986 | 6.6 | % | |||||
Shares outstanding at end of period (000) | 740,465 | 769,272 | (3.7 | )% | |||||||
NON-U.S. GAAP FINANCIAL MEASURES
This earnings release includes references to Aflac’s non-U.S. GAAP financial measures, adjusted earnings, adjusted earnings per diluted share, adjusted return on equity, amortized hedge costs/income, and adjusted book value. These measures are not calculated in accordance with U.S. GAAP. The measures exclude items that the company believes may obscure the underlying fundamentals and trends in insurance operations because they tend to be driven by general economic conditions and events or related to infrequent activities not directly associated with insurance operations. Management uses adjusted earnings, adjusted earnings per diluted share, and adjusted return on equity to evaluate the financial performance of Aflac’s insurance operations on a consolidated basis and believes that a presentation of these measures is vitally important to an understanding of the underlying profitability drivers and trends of Aflac’s insurance business. The company believes that amortized hedge costs/income, which are a component of adjusted earnings, measure the periodic currency risk management costs/income related to hedging certain foreign currency exchange risks and are an important component of net investment income. The company considers adjusted book value important as it excludes accumulated other comprehensive income (AOCI), which fluctuates due to market movements that are outside management’s control. Definitions of the company’s non-U.S. GAAP financial measures and reconciliations to the most comparable U.S. GAAP measures are provided below and in the following schedules.
Due to the size of Aflac Japan, where the functional currency is the Japanese yen, fluctuations in the yen/dollar exchange rate can have a significant effect on reported results. In periods when the yen weakens, translating yen into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period results in relation to the comparable prior period. A significant portion of the company’s business is conducted in yen and never converted into dollars but translated into dollars for U.S. GAAP reporting purposes, which results in foreign currency impact to earnings, cash flows and book value on a U.S. GAAP basis. Because foreign exchange rates are outside of management’s control, Aflac believes it is important to understand the impact of translating Japanese yen into U.S. dollars. Adjusted earnings, adjusted earnings per diluted share, and adjusted return on equity, all excluding current period foreign currency impact, are computed using the average yen/dollar exchange rate for the comparable prior year period, which eliminates fluctuations driven solely by yen-to-dollar currency rate changes. The average yen/dollar exchange rate is based on the published MUFG Bank, Ltd. telegraphic transfer middle rate (TTM).
The company defines the non-U.S. GAAP financial measures included in this earnings release as follows:
• | Adjusted earnings are adjusted revenues less benefits and adjusted expenses. The adjustments to both revenues and expenses account for certain items that cannot be predicted or that are outside management’s control. Adjusted revenues are U.S. GAAP total revenues excluding realized investment gains and losses, except for amortized hedge costs/income related to foreign currency exposure management strategies and net interest cash flows from derivatives associated with certain investment strategies. Adjusted expenses are U.S. GAAP total acquisition and operating expenses including the impact of interest cash flows from derivatives associated with notes payable but excluding any nonrecurring or other items not associated with the normal course of the company’s insurance operations and that do not reflect the company's underlying business performance. The most comparable U.S. GAAP measure is net earnings. |
• | Adjusted earnings per share (basic or diluted) are the adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. The most comparable U.S. GAAP measure is net earnings per share. |
• | Adjusted return on equity excluding foreign currency impact is calculated using adjusted earnings excluding the impact of the yen/dollar exchange rate, as reconciled with total U.S. GAAP net earnings, divided by average shareholders’ equity, excluding AOCI. The most comparable U.S. GAAP financial measure is return on average equity (ROE) as determined using net earnings and average total shareholders’ equity. |
• | Amortized hedge costs/income represent costs/income incurred or recognized in using foreign currency forward contracts to hedge certain foreign exchange risks in the company's Japan segment (costs) or in the Corporate and Other segment (income). These amortized hedge costs/income are derived from the difference between the foreign currency spot rate at time of trade inception and the contractual foreign currency forward rate, recognized on a straight line basis over the term of the hedge. There is no comparable U.S. GAAP financial measure for amortized hedge costs/income. |
• | Adjusted book value is the U.S. GAAP book value (representing total shareholders' equity), less AOCI as recorded on the U.S. GAAP balance sheet. The company considers adjusted book value important as it excludes AOCI, which fluctuates due to market movements that are outside management's control. |
• | Adjusted book value per share is the adjusted book value at the period end divided by the outstanding common shares at the period end. The most comparable U.S. GAAP measure is total book value per share. |
RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS1 | |||||||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS) | |||||||||||
THREE MONTHS ENDED JUNE 30, | 2019 | 2018 | % Change | ||||||||
Net earnings | $ | 817 | $ | 832 | (1.8 | )% | |||||
Items impacting net earnings: | |||||||||||
Realized investment (gains) losses | 33 | (35 | ) | ||||||||
Other and non-recurring (income) loss | — | 41 | |||||||||
Income tax (benefit) expense on items excluded from adjusted earnings | (5 | ) | (4 | ) | |||||||
Adjusted earnings | 846 | 835 | 1.3 | % | |||||||
Current period foreign currency impact 2 | 4 | N/A | |||||||||
Adjusted earnings excluding current period foreign currency impact 3 | $ | 851 | $ | 835 | 1.9 | % | |||||
Net earnings per diluted share | $ | 1.09 | $ | 1.07 | 1.9 | % | |||||
Items impacting net earnings: | |||||||||||
Realized investment (gains) losses | 0.04 | (0.04 | ) | ||||||||
Other and non-recurring (income) loss | — | 0.05 | |||||||||
Income tax (benefit) expense on items excluded from adjusted earnings | (0.01 | ) | (0.01 | ) | |||||||
Adjusted earnings per diluted share | 1.13 | 1.07 | 5.6 | % | |||||||
Current period foreign currency impact 2 | 0.01 | N/A | |||||||||
Adjusted earnings per diluted share excluding current period foreign currency impact 3 | $ | 1.14 | $ | 1.07 | 6.5 | % | |||||
1 Amounts may not foot due to rounding.
2 Prior period foreign currency impact reflected as “N/A” to isolate change for current period only.
3 Amounts excluding current period foreign currency impact are computed using the average yen/dollar exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by yen-to-dollar currency rate changes.
RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS1 | |||||||||||
(UNAUDITED – IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS) | |||||||||||
SIX MONTHS ENDED JUNE 30, | 2019 | 2018 | % Change | ||||||||
Net earnings | $ | 1,745 | $ | 1,550 | 12.6 | % | |||||
Items impacting net earnings: | |||||||||||
Realized investment (gains) losses | (70 | ) | 63 | ||||||||
Other and non-recurring (income) loss | 1 | 70 | |||||||||
Income tax (benefit) expense on items excluded from adjusted earnings | 18 | (28 | ) | ||||||||
Adjusted earnings | 1,695 | 1,655 | 2.4 | % | |||||||
Current period foreign currency impact 2 | 13 | N/A | |||||||||
Adjusted earnings excluding current period foreign currency impact 3 | $ | 1,708 | $ | 1,655 | 3.2 | % | |||||
Net earnings per diluted share | $ | 2.32 | $ | 1.98 | 17.2 | % | |||||
Items impacting net earnings: | |||||||||||
Realized investment (gains) losses | (0.09 | ) | 0.08 | ||||||||
Other and non-recurring (income) loss | — | 0.09 | |||||||||
Income tax (benefit) expense on items excluded from adjusted earnings | 0.02 | (0.04 | ) | ||||||||
Adjusted earnings per diluted share | 2.25 | 2.12 | 6.1 | % | |||||||
Current period foreign currency impact 2 | 0.02 | N/A | |||||||||
Adjusted earnings per diluted share excluding current period foreign currency impact 3 | $ | 2.27 | $ | 2.12 | 7.1 | % | |||||
1 Amounts may not foot due to rounding.
2 Prior period foreign currency impact reflected as “N/A” to isolate change for current period only.
3 Amounts excluding current period foreign currency impact are computed using the average yen/dollar exchange rate for the comparable prior-year period, which eliminates fluctuations driven solely by yen-to-dollar currency rate changes.
RECONCILIATION OF U.S. GAAP BOOK VALUE TO ADJUSTED BOOK VALUE 1 | |||||||||||
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS) | |||||||||||
JUNE 30, | 2019 | 2018 | % Change | ||||||||
U.S. GAAP book value | $ | 28,241 | $ | 23,800 | |||||||
Less: | |||||||||||
Unrealized foreign currency translation gains (losses) | (1,455 | ) | (1,766 | ) | |||||||
Unrealized gains (losses) on securities and derivatives | 8,028 | 4,813 | |||||||||
Pension liability adjustment | (209 | ) | (195 | ) | |||||||
Total AOCI | 6,364 | 2,852 | |||||||||
Adjusted book value 2 | $ | 21,877 | $ | 20,948 | |||||||
Add: | |||||||||||
Unrealized foreign currency translation gains (losses) | (1,455 | ) | (1,766 | ) | |||||||
Adjusted book value including unrealized foreign currency translation gains (losses) 3 | $ | 20,422 | $ | 19,182 | |||||||
Number of outstanding shares at end of period (000) | 740,465 | 769,272 | |||||||||
U.S. GAAP book value per common share | $ | 38.14 | $ | 30.94 | 23.3 | % | |||||
Less: | |||||||||||
Unrealized foreign currency translation gains (losses) per common share | (1.96 | ) | (2.30 | ) | |||||||
Unrealized gains (losses) on securities and derivatives per common share | 10.84 | 6.26 | |||||||||
Pension liability adjustment per common share | (0.28 | ) | (0.25 | ) | |||||||
Total AOCI per common share | 8.59 | 3.71 | |||||||||
Adjusted book value per common share 4 | $ | 29.54 | $ | 27.23 | 8.5 | % | |||||
Add: | |||||||||||
Unrealized foreign currency translation gains (losses) per common share | (1.96 | ) | (2.30 | ) | |||||||
Adjusted book value including foreign currency translation gains (losses) per common share 3 | $ | 27.58 | $ | 24.93 | 10.6 | % | |||||
1 | Amounts may not foot due to rounding. |
2 | Adjusted book value is the U.S. GAAP book value (representing total shareholder's equity), excluding AOCI (as recorded on the U.S. GAAP balance sheet). |
3 | Adjusted book value including unrealized foreign currency translation gains (losses) is adjusted book value plus unrealized foreign currency translation gains (losses). |
4 Adjusted book value per share is the adjusted book value at the period ended divided by the ending outstanding common shares for the period
presented. The most comparable U.S. GAAP measure is total book value per share.
RECONCILIATION OF U.S. GAAP RETURN ON EQUITY (ROE) TO ADJUSTED ROE 1 | ||||||
(EXCLUDING IMPACT OF FOREIGN CURRENCY) | ||||||
THREE MONTHS ENDED JUNE 30, | 2019 | 2018 | ||||
Net earnings - U.S. GAAP ROE 2 | 12.0 | % | 13.8 | % | ||
Impact of excluding unrealized foreign currency translation gains (losses) | (0.9 | ) | (1.0 | ) | ||
Impact of excluding unrealized gains (losses) on securities and derivatives | 4.0 | 3.4 | ||||
Impact of excluding pension liability adjustment | (0.1 | ) | (0.1 | ) | ||
Impact of excluding AOCI | 3.0 | 2.2 | ||||
U.S. GAAP ROE - less AOCI | 15.0 | 16.0 | ||||
Differences between adjusted earnings and net earnings 3 | 0.5 | 0.1 | ||||
Adjusted ROE - reported | 15.6 | 16.1 | ||||
Less: Impact of foreign currency 4 | (0.1 | ) | N/A | |||
Adjusted ROE, excluding impact of foreign currency | 15.7 | 16.1 | ||||
1 | Amounts presented may not foot due to rounding. |
2 | U.S. GAAP ROE is calculated by dividing net earnings (annualized) by average shareholders' equity. |
3 | See separate reconciliation of net income to adjusted earnings. |
4 | Impact of foreign currency is calculated by restating all yen components of the income statement to the weighted average yen rate for the comparable prior year period. The impact is the difference of the restated adjusted earnings compared to reported adjusted earnings. For comparative purposes, only current period income is restated using the weighted average prior period exchange rate, which eliminates the foreign currency impact for the current period. This allows for equal comparison of this financial measure. |
RECONCILIATION OF U.S. GAAP RETURN ON EQUITY (ROE) TO ADJUSTED ROE 1 | ||||||
(EXCLUDING IMPACT OF FOREIGN CURRENCY) | ||||||
SIX MONTHS ENDED JUNE 30, | 2019 | 2018 | ||||
Net earnings - U.S. GAAP ROE 2 | 13.5 | % | 12.8 | % | ||
Impact of excluding unrealized foreign currency translation gains (losses) | (1.0 | ) | (1.1 | ) | ||
Impact of excluding unrealized gains (losses) on securities and derivatives | 3.9 | 3.3 | ||||
Impact of excluding pension liability adjustment | (0.1 | ) | (0.1 | ) | ||
Impact of excluding AOCI | 2.7 | 2.1 | ||||
U.S. GAAP ROE - less AOCI | 16.2 | 14.9 | ||||
Differences between adjusted earnings and net earnings 3 | (0.5 | ) | 1.0 | |||
Adjusted ROE - reported | 15.7 | 15.9 | ||||
Less: Impact of foreign currency 4 | (0.1 | ) | N/A | |||
Adjusted ROE, excluding impact of foreign currency | 15.8 | 15.9 | ||||
1 | Amounts presented may not foot due to rounding. |
2 | U.S. GAAP ROE is calculated by dividing net earnings (annualized) by average shareholders' equity. |
3 | See separate reconciliation of net income to adjusted earnings. |
4 | Impact of foreign currency is calculated by restating all yen components of the income statement to the weighted average yen rate for the comparable prior year period. The impact is the difference of the restated adjusted earnings compared to reported adjusted earnings. For comparative purposes, only current period income is restated using the weighted average prior period exchange rate, which eliminates the foreign currency impact for the current period. This allows for equal comparison of this financial measure. |
EFFECT OF FOREIGN CURRENCY ON ADJUSTED RESULTS1 | ||||||
(SELECTED PERCENTAGE CHANGES, UNAUDITED) | ||||||
THREE MONTHS ENDED JUNE 30, 2019 | Including Currency Changes | Excluding Currency Changes2 | ||||
Net premium income 3 | (0.5 | )% | (0.1 | )% | ||
Net investment income 4 | 1.8 | 2.1 | ||||
Total benefits and expenses | (0.4 | ) | — | |||
Adjusted earnings | 1.3 | 1.9 | ||||
Adjusted earnings per diluted share | 5.6 | 6.5 | ||||
1 | Refer to previously defined adjusted earnings and adjusted earnings per diluted share. |
2 | Amounts excluding currency changes were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year, which eliminates dollar-based fluctuations driven solely from currency rate changes. |
3 | Net of reinsurance |
4 | Less amortized hedge costs/income on foreign investments |
EFFECT OF FOREIGN CURRENCY ON ADJUSTED RESULTS1 | ||||||
(SELECTED PERCENTAGE CHANGES, UNAUDITED) | ||||||
SIX MONTHS ENDED JUNE 30, 2019 | Including Currency Changes | Excluding Currency Changes2 | ||||
Net premium income 3 | (0.8 | )% | 0.1 | % | ||
Net investment income 4 | 3.7 | 4.2 | ||||
Total benefits and expenses | (0.6 | ) | 0.3 | |||
Adjusted earnings | 2.4 | 3.2 | ||||
Adjusted earnings per diluted share | 6.1 | 7.1 | ||||
1 | Refer to previously defined adjusted earnings and adjusted earnings per diluted share. |
2 | Amounts excluding currency changes were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year, which eliminates dollar-based fluctuations driven solely from currency rate changes. |
3 | Net of reinsurance |
4 | Less amortized hedge costs on foreign investments |
2019 ADJUSTED EARNINGS PER SHARE1 SCENARIOS2 | ||||||||||||||
Weighted-Average Yen/Dollar Exchange Rate | Adjusted Earnings Per Diluted Share | Foreign Currency Impact | ||||||||||||
100 | $ 4.26 | - | $ 4.46 | $ 0.16 | ||||||||||
105 | 4.18 | - | 4.38 | 0.08 | ||||||||||
110.393 | 4.10 | - | 4.30 | - | ||||||||||
115 | 4.03 | - | 4.23 | (0.07) | ||||||||||
120 | 3.96 | - | 4.16 | (0.14) | ||||||||||
1 | A non-U.S. GAAP financial measure, adjusted earnings per share (basic or diluted) are the adjusted earnings for the period divided by the weighted average outstanding shares (basic or diluted) for the period presented. In reliance on the “unreasonable efforts” exception in Item 10(e)(1)(i)(B) of SEC Regulation S-K, a quantitative reconciliation to the most comparable U.S. GAAP measure is not provided for this financial measure. Forward-looking information with regard to the most comparable U.S. GAAP financial measure, earnings per share, is not available without unreasonable effort. This is due to the unpredictable and uncontrollable nature of these reconciling items, which would require an unreasonable effort to forecast and we believe would result in such a broad range of projected values that would not be meaningful to investors. For this reason, we believe that the probable significance of such information is low. |
2 | Table recasts all quarters to the average exchange rate. |
3 | Actual 2018 weighted-average exchange rate |
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” to encourage companies to provide prospective information, so long as those informational statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements. The company desires to take advantage of these provisions. This document contains cautionary statements identifying important factors that could cause actual results to differ materially from those projected herein, and in any other statements made by company officials in communications with the financial community and contained in documents filed with the Securities and Exchange Commission (SEC). Forward-looking statements are not based on historical information and relate to future operations, strategies, financial results or other developments. Furthermore, forward-looking information is subject to numerous assumptions, risks and uncertainties. In particular, statements containing words such as “expect,” “anticipate,” “believe,” “goal,” “objective,” “may,” “should,” “estimate,” “intends,” “projects,” “will,” “assumes,” “potential,” “target,” "outlook" or similar words as well as specific projections of future results, generally qualify as forward-looking. Aflac undertakes no obligation to update such forward-looking statements.
The company cautions readers that the following factors, in addition to other factors mentioned from time to time, could cause actual results to differ materially from those contemplated by the forward-looking statements:
• | difficult conditions in global capital markets and the economy |
• | exposure to significant interest rate risk |
• | concentration of business in Japan |
• | foreign currency fluctuations in the yen/dollar exchange rate |
• | limited availability of acceptable yen-denominated investments |
• | U.S. tax audit risk related to conversion of the Japan branch to a subsidiary |
• | deviations in actual experience from pricing and reserving assumptions |
• | ability to continue to develop and implement improvements in information technology systems |
• | competitive environment and ability to anticipate and respond to market trends |
• | ability to protect the Aflac brand and the Company's reputation |
• | ability to attract and retain qualified sales associates, brokers, employees, and distribution partners |
• | interruption in telecommunication, information technology and other operational systems, or a failure to maintain the security, confidentiality or privacy of sensitive data residing on such systems |
• | failure to comply with restrictions on patient privacy and information security |
• | extensive regulation and changes in law or regulation by governmental authorities |
• | tax rates applicable to the Company may change |
• | defaults and credit downgrades of investments |
• | decline in creditworthiness of other financial institutions |
• | significant valuation judgments in determination of amount of impairments taken on the Company's investments |
• | subsidiaries' ability to pay dividends to the Parent Company |
• | decreases in the Company's financial strength or debt ratings |
• | inherent limitations to risk management policies and procedures |
• | concentration of the Company's investments in any particular single-issuer or sector |
• | differing judgments applied to investment valuations |
• | ability to effectively manage key executive succession |
• | catastrophic events including, but not necessarily limited to, epidemics, pandemics, tornadoes, hurricanes, earthquakes, tsunamis, war or other military action, terrorism or other acts of violence, and damage incidental to such events |
• | changes in accounting standards |
• | increased expenses and reduced profitability resulting from changes in assumptions for pension and other postretirement benefit plans |
• | level and outcome of litigation |
• | allegations or determinations of worker misclassification in the United States |
Analyst and investor contact - David A. Young, 706.596.3264 or 800.235.2667; FAX: 706.324.6330 or [email protected]
Media contact - Catherine H. Blades, 706.596.3014; FAX: 706.320.2288 or [email protected]