COLUMBUS, Ga., July 25 /PRNewswire-FirstCall/ -- Aflac Incorporated
(NYSE: AFL) today reported its second quarter results.
Reflecting a weaker yen to the dollar, total revenues were $3.7 billion
during the second quarter of 2006, compared with $3.6 billion a year ago.
Net earnings were $408 million, or $.81 per diluted share, compared with
$336 million, or $.66 per share, a year ago. Net earnings included realized
investment gains of $31 million, or $.06 per diluted share, compared with
realized investment gains of $7 million, or $.01 per share, a year ago. The
significant realized investment gains in the quarter resulted from the
bond- swap program we initiated in the third quarter of 2005. Net earnings
in the second quarter of 2006 also included a gain of $1 million, or nil
per diluted share, from the change in fair value of the interest rate
component of the cross-currency swaps related to the company's senior
notes, as required by SFAS 133. In the second quarter of 2005, the impact
from SFAS 133 increased net earnings by $3 million, or $.01 per diluted
share.
We believe that an analysis of operating earnings, a non-GAAP financial
measure, is vitally important to an understanding of Aflac's underlying
profitability drivers. We define operating earnings as the profits we
derive from our operations before realized investment gains and losses, the
impact from SFAS 133, and nonrecurring items. Management uses operating
earnings to evaluate the financial performance of Aflac's insurance
operations because realized gains and losses, the impact from SFAS 133, and
nonrecurring items tend to be driven by general economic conditions and
events, and therefore may obscure the underlying fundamentals and trends in
Aflac's insurance operations.
Furthermore, because a significant portion of our business is in Japan,
where our functional currency is the Japanese yen, we believe it is equally
important to understand the impact on operating earnings from translating
yen into dollars. We translate Aflac Japan's yen-denominated income
statement from yen into dollars using an average exchange rate for the
reporting period, and we translate the balance sheet using the exchange
rate at the end of the period. However, except for a limited number of
transactions, we do not actually convert yen into dollars. As a result, we
view foreign currency translation as a financial reporting issue for Aflac
and not as an economic event to our company or shareholders. Because
changes in exchange rates distort the growth rates of our operations, we
also encourage readers of our financial statements to evaluate our
financial performance excluding the impact of foreign currency translation.
The chart at the end of this release presents a comparison of selected
income statement items with and without foreign currency changes to
illustrate the effect of currency translation.
Operating earnings in the second quarter of 2006 were $376 million,
compared with $326 million in the second quarter of 2005. Operating
earnings per diluted share rose 17.2% to $.75, compared with $.64 a year
ago. The weaker yen/dollar exchange rate lowered operating earnings per
diluted share by $.02 during the quarter. Excluding the impact from the
weaker yen, operating earnings per share increased 20.3%.
For the first six months of 2006, our results were also impacted by the
weaker yen. Total revenues rose 1.8% to $7.3 billion, compared with $7.1
billion in the first half of 2005. Net earnings were $783 million, or $1.55
per diluted share, compared with $664 million, or $1.30 per share, for the
first six months of 2005. Operating earnings for the six months were $740
million, or $1.47 per diluted share, compared with $661 million, or $1.30
per share, in 2005. Excluding the negative impact of $.06 per share from
the weaker yen, operating earnings per diluted share rose 17.7% for the
first six months.
During the second quarter, we acquired 2.1 million shares of Aflac
stock, bringing the total number of shares purchased in the first half of
2006 to 4.1 million. At the end of June, we had approximately 43 million
shares available for repurchase under authorizations by the board of
directors.
AFLAC JAPAN
Aflac Japan produced solid financial results in the second quarter.
Premium income in yen rose 6.2% and net investment income increased 9.0%.
Investment income growth in yen terms was magnified by the weaker
yen/dollar exchange rate because approximately 37% of Aflac Japan's second
quarter investment income was dollar-denominated. Total revenues were up
6.5%. Due to improvement in the benefit and expense ratios, the pretax
operating profit margin expanded from 14.7% to 16.3%. As a result, pretax
operating earnings in yen increased 18.5%. For the six months, premium
income in yen increased 6.2%, and net investment income rose 10.1%. Total
revenues were up 6.7% and pretax operating earnings grew 18.9%.
The average yen/dollar exchange rate in the second quarter of 2006 was
114.43, or 5.9% weaker than the average rate of 107.63 in the second
quarter of 2005. For the six months, the average exchange rate was 115.65,
or 8.3% weaker than the rate of 106.04 a year ago. Aflac Japan's growth
rates in dollar terms for the second quarter and first six months were
suppressed as a result of the weaker average exchange rates.
Reflecting the weaker yen, premium income in dollars declined .1% to
$2.2 billion in the second quarter. Net investment income rose 2.6% to $422
million. Total revenues rose .2% to $2.6 billion. Pretax operating earnings
were $432 million, or 11.5% higher than a year ago. For the six months,
premium income was $4.4 billion, down 2.6% from a year ago. Net investment
income was up 1.0% to $830 million. Total revenues declined 2.1% to $5.2
billion. Pretax operating earnings were $857 million, or 9.0% higher than a
year ago.
Aflac Japan's total new annualized premium sales declined 4.2% in the
second quarter to 31.2 billion yen, or $273 million. For the first six
months, total new premium sales were down 2.8% to 60.6 billion yen, or $524
million. As we discussed at our May analyst meeting, sales in April were
weaker than expected. However, sales recovered in May and were also up for
the first three weeks of June. Unfortunately, sales for the last few days
of June were especially weak. From a product perspective, the decline in
second quarter sales primarily reflected weakness in the medical product
category. Rider MAX sales and conversions were lower than a year ago, as
were sales of our stand-alone medical products. Sales of the cancer life
category were strong in the quarter, rising 14.2%, compared with the second
quarter of 2005. Cancer life sales through Dai-ichi Mutual Life were down
3.2%. WAYS, the unique life insurance product we introduced in January,
also sold well in the quarter. WAYS allows a policyholder to convert a
portion of the life insurance coverage to medical, nursing care, or fixed
annuity benefits at retirement age. WAYS sales were up 21.4% over the first
quarter of 2006 and represented approximately 10% of second quarter sales.
AFLAC U.S.
Aflac U.S. also produced a solid quarter. Premium income increased 9.3%
to $878 million. Net investment income was up 10.0% to $115 million. Total
revenues rose 9.2% to $994 million. Pretax operating earnings were $150
million, an increase of 15.1%. For the first six months, premium income
rose 9.7% to $1.7 billion. Net investment income increased 9.1% to $225
million. Total revenues were up 9.6% to $2.0 billion. Pretax operating
earnings rose 12.7% to $297 million.
Aflac U.S. sales results were consistent with our expectations for the
second quarter. Total new annualized premium sales rose 6.3% to $327
million. For the six months, total new annualized premium sales increased
8.8% to $645 million. We again experienced solid growth from the hospital
indemnity product line. Hospital indemnity sales were up 20.8% in the
second quarter, accounting for approximately 13% of sales.
Our sales force continued to grow through June. We recruited
approximately 6,800 new sales associates, which was .8% higher than the
second quarter of 2005. The total number of licensed agents was up 5.8%
over a year ago. The number of producing sales associates also increased.
The number of average monthly producing associates rose 1.0% in the quarter
to more than 17,500. On an average weekly basis, the number of producing
associates was up 2.7% to more than 9,900.
DIVIDEND
The board of directors declared the third quarter cash dividend. The
third quarter dividend of $.13 per share is payable on September 1, 2006,
to shareholders of record at the close of business on August 18, 2006.
OUTLOOK
Commenting on the company's second quarter results, Chairman and Chief
Executive Officer Daniel P. Amos stated: "We are very pleased with Aflac's
financial performance for the first half of 2006. In terms of pretax
operating earnings, both Aflac U.S. and Aflac Japan surpassed our
expectations. As a result, we exceeded our primary financial objective of
increasing operating earnings per share by 15% before the impact of the
yen. At the same time, we are encouraged that the sales activities of Aflac
U.S. were in line with our expectations. We believe third quarter sales for
Aflac U.S. will likely increase at a rate similar to our second quarter
results. However, we expect to see stronger sales in the fourth quarter,
which we believe will enable us to achieve our objective of an 8% to 12%
sales increase for the year.
"Our sales in Japan, on the other hand, were disappointing. While Aflac
Japan's sales decline in the first quarter was expected, the drop in second
quarter sales was not. As I have stated previously, Japan's medical
insurance market has become increasingly crowded with products that compete
with Aflac's market-leading policies. Additionally, our preliminary
research indicates medical sales for the entire industry were down for the
first half of this year. Although we believe our coverage represents a
superior value, it's becoming more difficult for us to attract customers
who are policyholders of other companies. Given the current market
environment, we believe Aflac Japan's sales will likely be flat to down
single digits for the remainder of the year.
"Most importantly, we continue to believe our operations in Japan are
well-positioned to achieve their financial targets for the year despite
slower sales. Our persistency in Japan remains strong, and improved
investment income growth has benefited our operations in Japan, as has
continued improvement in our profit margin. We also expect Aflac U.S. to
continue generating financial results that are in line with our objectives.
As such, I am very confident that we will achieve our primary financial
goal for 2006 of increasing operating earnings per diluted share 15%,
excluding foreign currency translation. For 2007 our goal remains a 15% to
16% increase in operating earnings per diluted share, excluding the impact
of the yen. We believe our earnings goal for 2007 is achievable as well."
For more than 50 years, Aflac products have given policyholders the
opportunity to direct cash where it is needed most when a life-interrupting
medical event causes financial challenges. Aflac is the number one provider
of guaranteed-renewable insurance in the United States and the number one
insurance company in terms of individual insurance policies in force in
Japan. Aflac's insurance products provide protection to more than 40
million people worldwide. Aflac has been included in Fortune magazine's
listing of America's Most Admired Companies for six consecutive years and
Forbes magazine's Platinum 400 List of America's Best Big Companies for
five consecutive years. In January 2006, Aflac was included in Fortune
magazine's list of the 100 Best Companies to Work For in America for the
eighth consecutive year. Aflac was also included in Fortune magazine's list
of the Top 50 Employers for Minorities in August 2005, and in September
2005, Aflac Japan was named the Life Insurance Company of the Year at the
Asia Insurance Industry Awards, sponsored by the Asia Insurance Review.
Aflac Incorporated is a Fortune 500 company listed on the New York Stock
Exchange under the symbol AFL. To find out more about Aflac, visit
aflac.com.
A copy of Aflac's Financial Analyst Briefing (FAB) supplement for the
second quarter of 2006 can be found in the "Company Financials" section of
the "For Investors" page at aflac.com.
Aflac Incorporated will webcast its second quarter conference call on
the "For Investors" page of aflac.com at 9:00 a.m. (EDT), Wednesday, July
26.
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2006 2005 % Change
Total revenues $3,697 $3,567 3.6 %
Benefits and claims 2,243 2,229 .6
Total acquisition and operating
expenses 830 822 .9
Earnings before income taxes 624 516 21.0
Income taxes 216 180
Net earnings $408 $336 21.6 %
Net earnings per share - basic $.82 $.67 22.4 %
Net earnings per share - diluted .81 .66 22.7
Shares used to compute earnings
per share (000):
Basic 496,951 501,426 (.9)%
Diluted 503,286 508,002 (.9)
Dividends paid per share $.13 $.11 18.2 %
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED INCOME STATEMENT
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AND PER-SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 2006 2005 % Change
Total revenues $7,256 $7,127 1.8 %
Benefits and claims 4,424 4,495 (1.6)
Total acquisition and operating
expenses 1,633 1,609 1.5
Earnings before income taxes 1,199 1,023 17.2
Income taxes 416 359
Net earnings $783 $664 18.0 %
Net earnings per share - basic $1.57 $1.32 18.9 %
Net earnings per share - diluted 1.55 1.30 19.2
Shares used to compute earnings
per share (000):
Basic 497,491 502,063 (.9)%
Diluted 503,927 508,722 (.9)
Dividends paid per share $.26 $.22 18.2 %
AFLAC INCORPORATED AND SUBSIDIARIES CONDENSED BALANCE SHEET
(UNAUDITED - IN MILLIONS, EXCEPT FOR SHARE AMOUNTS)
JUNE 30, 2006 2005 % Change
Assets:
Total investments and cash $49,795 $50,547 (1.5)%
Deferred policy acquisition costs 5,895 5,586 5.5
Other assets 1,742 1,862 (6.5)
Total assets $57,432 $57,995 (1.0)%
Liabilities and shareholders' equity:
Policy liabilities $44,964 $43,068 4.4 %
Notes payable 1,071 1,369 (21.8)
Other liabilities 4,228 5,099 (17.1)
Shareholders' equity 7,169 8,459 (15.2)
Total liabilities and
shareholders' equity $57,432 $57,995 (1.0)%
Shares outstanding at end
of period (000) 497,124 501,172 (.8)%
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, 2006 2005 % Change
Operating earnings $376 $326 15.3 %
Reconciling items, net of tax:
Realized investment gains (losses) 31 7
Impact from SFAS 133 1 3
Net earnings $408 $336 21.6 %
Operating earnings per
diluted share $.75 $.64 17.2 %
Reconciling items, net of tax:
Realized investment gains (losses) .06 .01
Impact from SFAS 133 - .01
Net earnings per diluted share $.81 $.66 22.7 %
RECONCILIATION OF OPERATING EARNINGS TO NET EARNINGS
(UNAUDITED - IN MILLIONS, EXCEPT FOR PER-SHARE AMOUNTS)
SIX MONTHS ENDED JUNE 30, 2006 2005 % Change
Operating earnings $740 $661 12.0 %
Reconciling items, net of tax:
Realized investment gains (losses) 41 9
Impact from SFAS 133 2 (6)
Net earnings $783 $664 18.0 %
Operating earnings per
diluted share $1.47 $1.30 13.1 %
Reconciling items, net of tax:
Realized investment gains (losses) .08 .01
Impact from SFAS 133 - (.01 )
Net earnings per diluted share $1.55 $1.30 19.2 %
FOREIGN CURRENCY TRANSLATION EFFECT ON OPERATING RESULTS(1)
(SELECTED PERCENTAGE CHANGES, UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2006 Including Excluding
Currency Currency
Changes Changes(2)
Premium income 2.4 % 7.1 %
Net investment income 4.5 7.8
Total benefits and expenses .7 5.3
Operating earnings 15.3 18.7
Operating earnings per diluted share 17.2 20.3
(1) The numbers in this table are presented on an operating basis, as
previously described.
(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.
FOREIGN CURRENCY TRANSLATION EFFECT ON OPERATING RESULTS(1)
(SELECTED PERCENTAGE CHANGES, UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2006 Including Excluding
Currency Currency
Changes Changes(2)
Premium income .6 % 7.1 %
Net investment income 3.2 7.8
Total benefits and expenses (.8) 5.7
Operating earnings 12.0 17.0
Operating earnings per diluted share 13.1 17.7
(1) The numbers in this table are presented on an operating basis, as
previously described.
(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.
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. We desire 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," 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.
We caution 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:
legislative and regulatory developments; assessments for insurance company
insolvencies; competitive conditions in the United States and Japan; new
product development and customer response to new products and new marketing
initiatives; ability to attract and retain qualified sales associates;
ability to repatriate profits from Japan; changes in U.S. and/or Japanese
tax laws or accounting requirements; credit and other risks associated with
Aflac's investment activities; significant changes in investment yield
rates; fluctuations in foreign currency exchange rates; deviations in
actual experience from pricing and reserving assumptions including, but not
limited to, morbidity, mortality, persistency, expenses, and investment
yields; level and outcome of litigation; downgrades in the company's credit
rating; changes in rating agency policies or practices; subsidiary's
ability to pay dividends to parent company; ineffectiveness of hedging
strategies used to minimize the exposure of our shareholders' equity to
foreign currency translation fluctuations; catastrophic events; and general
economic conditions in the United States and Japan.
(Logo: http://www.newscom.com/cgi-bin/prnh/20041202/CLTH019LOGO)
Analyst and investor contact - Kenneth S. Janke Jr., 800.235.2667 -
option 3, FAX: 706.324.6330, or kjanke@aflac.com
Media contact - Laura Kane, 706.596.3493, FAX: 706.320.2288, or
lkane@aflac.com
SOURCE Aflac Incorporated
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Related links:
http://www.aflac.com/
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CONTACT:
Analyst and investors, Kenneth S. Janke Jr.,
+1-800-235-2667 - option 3, or fax, +1-706-324-6330, or
kjanke@aflac.com, or Media, Laura Kane, +1-706-596-3493, or fax,
+1-706-320-2288, or lkane@aflac.com , both of Aflac Incorporated
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