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
07/25/2006
CONTACT:
Analyst and investors
Kenneth S. Janke Jr.
+1-800-235-2667 option 3
or fax
+1-706-324-6330
kjanke@aflac.com
Media
Laura Kane
+1-706-596-3493
fax: +1-706-320-2288
lkane@aflac.com
both of Aflac Incorporated