Company Announcements

AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT

(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)

THREE MONTHS ENDED SEPTEMBER 30,

2019

2018

% Change

Total revenues

$

5,536

$

5,577

(0.7)

%

Benefits and claims, net

3,027

3,002

0.8

Total acquisition and operating expenses

1,473

1,429

3.1

Earnings before income taxes

1,036

1,146

(9.6)

Income taxes

259

301

Net earnings

$

777

$

845

(8.0)

%

Net earnings per share – basic

$

1.05

$

1.10

(4.5)

%

Net earnings per share – diluted

1.04

1.09

(4.6)

Shares used to compute earnings per share (000):

Basic

739,946

767,049

(3.5)

%

Diluted

743,842

772,070

(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)

NINE MONTHS ENDED SEPTEMBER 30,

2019

2018

% Change

Total revenues

$

16,704

$

16,632

0.4

%

Benefits and claims, net

8,958

9,075

(1.3)

Total acquisition and operating expenses

4,358

4,296

1.4

Earnings before income taxes

3,388

3,261

3.9

Income taxes

865

866

Net earnings

$

2,523

$

2,395

5.3

%

Net earnings per share – basic

$

3.38

$

3.10

9.0

%

Net earnings per share – diluted

3.37

3.08

9.4

Shares used to compute earnings per share (000):

Basic

745,465

772,807

(3.5)

%

Diluted

749,452

777,867

(3.7)

Dividends paid per share

$

0.81

$

0.78

3.8

%

AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET

(UNAUDITED – IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)

SEPTEMBER 30,

2019

2018

Assets:

Total investments and cash

$

139,510

$

124,214

12.3

%

Deferred policy acquisition costs

10,148

9,622

5.5

Other assets

4,479

4,105

9.1

Total assets

$

154,137

$

137,941

11.7

%

Liabilities and shareholders' equity:

Policy liabilities

$

107,530

$

100,584

6.9

%

Notes payable

6,233

5,279

18.1

Other liabilities

10,936

8,844

23.7

Shareholders' equity

29,438

23,234

26.7

Total liabilities and shareholders' equity

$

154,137

$

137,941

11.7

%

Shares outstanding at end of period (000)

735,130

763,113

(3.7)

%

RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS ¹

(UNAUDITED – IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)

THREE MONTHS ENDED SEPTEMBER 30,

2019

2018

% Change

Net earnings

$

777

$

845

(8.0)

%

Items impacting net earnings:

Realized investment (gains) losses

119

(88)

Other and non-recurring (income) loss

—

3

Income tax (benefit) expense on items excluded
from adjusted earnings

(33)

21

   Tax reform adjustment ⁴

—

11

Adjusted earnings

863

792

9.0

%

Current period foreign currency impact ²

(15)

N/A

Adjusted earnings excluding current period foreign 

     currency impact ³

$

848

$

792

7.1

%

Net earnings per diluted share

$

1.04

$

1.09

(4.6)

%

Items impacting net earnings:

Realized investment (gains) losses

0.16

(0.11)

Other and non-recurring (income) loss

—

—

Income tax (benefit) expense on items excluded
from adjusted earnings

(0.04)

0.03

   Tax reform adjustment ⁴

—

0.01

Adjusted earnings per diluted share

1.16

1.03

12.6

%

Current period foreign currency impact ²

(0.02)

N/A

Adjusted earnings per diluted share excluding 

     current period foreign currency impact ³

$

1.14

$

1.03

10.7

%

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.

⁴   

An adjustment of $11 million was made in the three- month period ended September 30, 2018, as a result of return-to-provision adjustments and various amended returns filed by the Company.

RECONCILIATION OF NET EARNINGS TO ADJUSTED EARNINGS ¹

(UNAUDITED – IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)

NINE MONTHS ENDED SEPTEMBER 30,

2019

2018

% Change

Net earnings

$

2,523

$

2,395

5.3

%

Items impacting net earnings:

Realized investment (gains) losses

49

(25)

Other and non-recurring (income) loss

1

73

Income tax (benefit) expense on items excluded
from adjusted earnings

(15)

(7)

   Tax reform adjustment ⁴

—

$

11

Adjusted earnings

2,558

2,447

4.5

%

Current period foreign currency impact ²

(2)

N/A

Adjusted earnings excluding current period foreign 

     currency impact ³

$

2,556

$

2,447

4.5

%

Net earnings per diluted share

$

3.37

$

3.08

9.4

%

Items impacting net earnings:

Realized investment (gains) losses

0.07

(0.03)

Other and non-recurring (income) loss

—

0.09

Income tax (benefit) expense on items excluded
from adjusted earnings

(0.02)

(0.01)

   Tax reform adjustment ⁴

—

$

0.01

Adjusted earnings per diluted share

3.41

3.15

8.3

%

Current period foreign currency impact ²

—

N/A

Adjusted earnings per diluted share excluding 

     current period foreign currency impact ³

$

3.41

$

3.15

8.3

%

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.

⁴   

An adjustment of $11 million was made in the three- month period ended September 30, 2018, as a result of return-to-provision adjustments and various amended returns filed by the Company.

RECONCILIATION OF U.S. GAAP BOOK VALUE TO ADJUSTED BOOK VALUE  ¹

(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)

SEPTEMBER 30,

2019

2018

% Change

U.S. GAAP book value

$

29,438

$

23,234

Less:

Unrealized foreign currency translation gains (losses)

(1,479)

(2,113)

Unrealized gains (losses) on securities and derivatives

8,937

4,216

Pension liability adjustment

(207)

(194)

Total AOCI

7,251

1,909

Adjusted book value ²

$

22,187

$

21,325

Add:

Unrealized foreign currency translation gains (losses)

(1,479)

(2,113)

Adjusted book value including unrealized foreign currency
   translation gains (losses) ³

$

20,708

$

19,212

Number of outstanding shares at end of period (000)

735,130

763,113

U.S. GAAP book value per common share

$

40.04

$

30.45

31.5

%

Less:

Unrealized foreign currency translation gains (losses)
   per common share

(2.01)

(2.77)

Unrealized gains (losses) on securities and derivatives
   per common share

12.16

5.52

Pension liability adjustment per common share

(0.28)

(0.25)

Total AOCI per common share

9.86

2.50

Adjusted book value per common share ⁴

$

30.18

$

27.94

8.0

%

Add:

Unrealized foreign currency translation gains (losses)
   per common share

(2.01)

(2.77)

Adjusted book value including foreign currency translation
   gains (losses) per common share ³

$

28.17

$

25.18

11.9

%

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 SEPTEMBER 30,

2019

2018

Net earnings - U.S. GAAP ROE ²

10.8

%

14.4

%

Impact of excluding unrealized foreign currency translation gains (losses)

(0.7)

(1.3)

Impact of excluding unrealized gains (losses) on securities and derivatives

4.1

3.0

Impact of excluding pension liability adjustment

(0.1)

(0.1)

Impact of excluding AOCI

3.3

1.6

U.S. GAAP ROE - less AOCI

14.1

16.0

Differences between adjusted earnings and net earnings ³

1.6

(1.0)

Adjusted ROE - reported

15.7

15.0

Less: Impact of foreign currency ⁴

0.3

N/A

Adjusted ROE, excluding impact of foreign currency

15.4

15.0

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)

NINE MONTHS ENDED SEPTEMBER 30,

2019

2018

Net earnings - U.S. GAAP ROE ²

12.7

%

13.4

%

Impact of excluding unrealized foreign currency translation gains (losses)

(1.0)

(1.2)

Impact of excluding unrealized gains (losses) on securities and derivatives

3.8

3.3

Impact of excluding pension liability adjustment

(0.1)

(0.1)

Impact of excluding AOCI

2.7

1.9

U.S. GAAP ROE - less AOCI

15.5

15.2

Differences between adjusted earnings and net earnings ³

0.2

0.3

Adjusted ROE - reported

15.7

15.6

Less: Impact of foreign currency ⁴

—

N/A

Adjusted ROE, excluding impact of foreign currency

15.7

15.6

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 RESULTS ¹

(SELECTED PERCENTAGE CHANGES, UNAUDITED)

THREE MONTHS ENDED SEPTEMBER 30, 2019

Including

Currency

Changes

Excluding

Currency

Changes²

Net premium income ³

2.2

%

(0.5)

%

Net investment income ⁴

8.1

6.5

Total benefits and expenses

1.6

(1.0)

Adjusted earnings

9.0

7.1

Adjusted earnings per diluted share

12.6

10.7

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 RESULTS ¹

(SELECTED PERCENTAGE CHANGES, UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30, 2019

Including

Currency

Changes

Excluding

Currency

Changes²

Net premium income ³

0.2

%

(0.1)

%

Net investment income ⁴

5.2

5.0

Total benefits and expenses

0.1

(0.2)

Adjusted earnings

4.5

4.5

Adjusted earnings per diluted share

8.3

8.3

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

2019 ADJUSTED EARNINGS PER SHARE¹ SCENARIOS²

Weighted-Average
Yen/Dollar

Exchange Rate

Adjusted Earnings
Per

Diluted Share

Foreign

Currency
Impact

100

$ 4.50

-

$ 4.60

$ 0.15

105

4.43

-

4.53

0.08

110.39³

4.35

-

4.45

-

115

4.28

-

4.38

(0.07)

120

4.21

-

4.31

(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

• events related to the ongoing Japan Post investigation
• 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