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<SEC-DOCUMENT>0000004977-01-500045.txt : 20010329
<SEC-HEADER>0000004977-01-500045.hdr.sgml : 20010329
ACCESSION NUMBER: 0000004977-01-500045
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 8
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010328
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AFLAC INC
CENTRAL INDEX KEY: 0000004977
STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321]
IRS NUMBER: 581167100
STATE OF INCORPORATION: GA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-07434
FILM NUMBER: 1581211
BUSINESS ADDRESS:
STREET 1: 1932 WYNNTON RD
CITY: COLUMBUS
STATE: GA
ZIP: 31999
BUSINESS PHONE: 7063233431
FORMER COMPANY:
FORMER CONFORMED NAME: AMERICAN FAMILY CORP
DATE OF NAME CHANGE: 19920306
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>k00edg.txt
<DESCRIPTION>2000 FORM 10-K
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000 Commission file no. 1-7434
AFLAC INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1167100
------------------------ -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
1932 Wynnton Road, Columbus, Georgia 31999
- ---------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 706-323-3431
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------------------ -------------------------
Common Stock, $.10 Par Value New York Stock Exchange
Pacific Exchange
Tokyo Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
--------
The number of shares of the registrant's Common Stock outstanding at March
16, 2001, with $.10 par value, was 528,367,118. The aggregate market value
of the voting stock held by non-affiliates of the registrant as of March 16,
2001 was $13,975,988,096.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
PART I Item 1 Exhibit 13 - pages 13-5 to 13-27 (Management's
Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)),
pages 13-40 to 13-53 (Notes 2 and 3 of the
Notes to the Consolidated Financial
Statements), and pages 13-65 to 13-66
(Note 9 of the Notes to the Consolidated
Financial Statements). The applicable
portions of the Company's Annual Report to
Shareholders for the year ended December 31,
2000, are included as Exhibit 13
Item 2 Exhibit 13 - page 13-71 (Note 12 of the Notes
to the Consolidated Financial Statements)
PART II Item 5 Exhibit 13 - pages 13-1, 13-2 and 13-65
(Note 9 of the Notes to the Consolidated
Financial Statements)
Item 6 Exhibit 13 - pages 13-3 and 13-4
Item 7 Exhibit 13 - pages 13-5 to 13-27
Item 7A Exhibit 13 - pages 13-7 to 13-8 and
13-16 to 13-19
Item 8 Exhibit 13 - pages 13-28 to 13-74
PART III Item 10 Incorporated by reference from the
definitive Proxy Statement for the Annual
Meeting of Shareholders to be held May 7,
2001 (the Proxy Statement)
Item 11 Incorporated by reference from the Proxy
Statement
Item 12 Incorporated by reference from the Proxy
Statement
Item 13 Incorporated by reference from the Proxy
Statement
i
<PAGE>
AFLAC Incorporated
Annual Report on Form 10-K
For the Year Ended December 31, 2000
Table of Contents
Page
------
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . I-18
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . I-18
Item 4. Submission of Matters to a Vote of Security Holders. . . I-19
Item 4A. Executive Officers of the Company. . . . . . . . . . . . I-19
PART II
Item 5. Market for Company's Common Equity and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . II-1
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . II-1
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . II-1
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk. . . . . . . . . . . . . . . . . . . II-1
Item 8. Financial Statements and Supplementary Data. . . . . . . II-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . II-1
PART III
Item 10. Directors and Executive Officers of the Company. . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . III-1
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . III-1
Item 13. Certain Relationships and Related Transactions . . . . . III-1
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . IV-1
ii
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION
AFLAC Incorporated was incorporated in 1973 under the laws of the state
of Georgia. AFLAC Incorporated is a general business holding company and
acts as a management company, overseeing the operations of its subsidiaries
by providing management services and making capital available. Its principal
business is supplemental health and life insurance, which is marketed and
administered primarily through its subsidiary, American Family Life
Assurance Company of Columbus (AFLAC). Most of AFLAC's policies are
individually underwritten and marketed at worksites through independent
agents with premiums paid by the employee. Our operations in Japan (AFLAC
Japan) and the United States (AFLAC U.S.) service the two markets for our
insurance business.
We are authorized to conduct insurance business in all 50 states, the
District of Columbia and several U.S. territories and foreign countries. Our
only significant foreign operation is AFLAC Japan, which accounted for 81%
of the company's total revenues for both 2000 and 1999, and 80% in 1998, and
86% and 87% of total assets at December 31, 2000 and 1999, respectively.
We believe AFLAC is the world's leading writer of cancer expense
insurance. We continue to diversify our product offerings to include other
types of supplemental health products in both the United States and Japan.
AFLAC Japan, in addition to cancer plans, also sells care plans,
supplemental general medical expense plans, medical/sickness riders to our
cancer plan, and a living benefit life plan. AFLAC U.S. also sells other
types of supplemental health insurance, including hospital intensive care,
accident and disability, hospital indemnity, long-term care, short-term
disability and dental plans. We also offer several life insurance plans in
the United States and Japan.
For financial information relating to our foreign and U.S. operations,
see Exhibit 13, pages 13-5 to 13-27 (Management's Discussion and Analysis of
Financial Condition and Results of Operations (MD&A)) and page 13-40 (Note 2
of the Notes to the Consolidated Financial Statements), which are
incorporated herein by reference.
On February 13, 2001, the board of directors declared a two-for-one
stock split to shareholders of record at the close of business on February
27, 2001. Share and per-share amounts have been adjusted to reflect the
split distributed on March 16, 2001.
Several significant nonoperating items affected our net earnings during
the three-year period ended December 31, 2000.
In the second quarter of 2000, the release of an accrued unfunded
liability for projected retirement payments increased pretax earnings by
$101 million ($99 million after taxes, or $.19 per basic share and $.18 per
diluted share). (See Exhibit 13, page 13-67, Note 10 of the Notes to the
Consolidated Financial Statements.)
During the second quarter of 2000, we sold one security reported as
available for sale at a pretax loss of $34 million. We also recorded a
I-1
<PAGE>
pretax impairment loss of $57 million on another security, which was carried
in the held-to-maturity category. These losses are included in realized
investment gains and losses. The combined effect of these losses decreased
net earnings by $58 million ($.11 per basic and diluted share) for the year
ended December 31, 2000.
In both 1998 and 1999, Japan enacted corporate income tax rate
reductions. The statutory tax rate for AFLAC Japan declined from 45.3% to
41.7% in 1998 and from 41.7% to 36.2% in 1999. These tax rate declines
caused reductions in our deferred income tax liability. The deferred tax
effect for the 1998 tax reduction was recognized in the first quarter of
1998, increasing net earnings by $121 million ($.23 per basic share and $.22
per diluted share). The deferred tax effect for the 1999 tax reduction was
recognized in the first quarter of 1999, increasing net earnings by $67
million ($.13 per basic share and $.12 per diluted share). For additional
information on the income tax reductions, see Exhibit 13, page 13-59, Note 7
of the Notes to the Consolidated Financial Statements.
Another factor affecting net earnings was the policyholder protection
system established by the Japanese government during the first quarter of
1998. The pretax charge for our obligation to the protection fund in 1998
was $111 million ($65 million after taxes, or $.12 per basic and diluted
share). In 1999, the Japanese government and the life insurance industry
agreed to legislation that increased the life insurance industry's legal
obligation to the fund. Our share of the industry's obligation was
recognized in the fourth quarter of 1999 and decreased pretax earnings by
$64 million ($41 million after taxes, or $.08 per basic share and $.07 per
diluted share). For further information regarding the policyholder
protection fund, see Exhibit 13, page 13-40, Note 2 of the Notes to the
Consolidated Financial Statements.
Operating earnings exclude realized investment gains/losses, the gain
from the release of the retirement accrual in 2000, the deferred income tax
benefits from the Japanese income tax rate reductions, and the charges for
the policyholder protection fund. Operating earnings per share amounts
referenced are based on the diluted number of average outstanding shares.
Due to the relative size of AFLAC Japan, fluctuations in the yen/dollar
exchange rate can have a significant effect on our reported results. In
years when the yen weakens, translating yen into dollars causes fewer
dollars to be reported. When the yen strengthens, translating yen into
dollars causes more dollars to be reported.
The yen strengthened in relation to the dollar during 1999 and 2000
after several years of weakening. The average yen/dollar exchange rates
were 107.83 in 2000, 113.96 in 1999 and 130.89 in 1998. The stronger yen in
2000 and 1999 increased operating earnings per share by $.02 in 2000
compared with 1999 and by $.06 per share in 1999 compared with 1998. The
weaker yen in 1998 lowered operating earnings per share by $.02 in 1998
compared with 1997. Reported operating earnings per share increased 20.0%
to $1.20 in 2000, 28.2% to $1.00 in 1999 and 18.2% to $.78 in 1998.
Our primary financial objective is the growth of operating earnings per
share excluding the effect of foreign currency fluctuations. Our goal for
2000 was 17% growth, which we exceeded. Excluding the effect of currency
fluctuations, operating earnings per share increased 18.0% in 2000 compared
with 1999, 20.5% in 1999 compared with 1998, and 21.2% in 1998 compared with
1997.
I-2
<PAGE>
For further information regarding the impact of currency fluctuations
on our business, see Exhibit 13, pages 13-7 to 13-8 (Foreign Currency
Translation section of Management's Discussion and Analysis).
Insurance premiums and investment income from insurance operations are
the major sources of revenues. Our consolidated premium income was $8.2
billion in 2000, $7.3 billion in 1999 and $5.9 billion in 1998. For further
information on our consolidated premiums earned by business segment, see
Note 2 of the Notes to the Consolidated Financial Statements in Exhibit 13,
page 13-40, incorporated herein by reference.
The following table sets forth the changes in annualized premiums in
force for AFLAC's insurance business for the years ended December 31:
(In millions) 2000 1999 1998
-------- -------- --------
Annualized premiums in force,
at beginning of year $ 8,395 $ 6,931 $ 5,811
Policies sold including
policy conversions 1,633 1,320 1,061
Change in unprocessed
policies (179) 21 (24)
Lapses and surrenders (831) (684) (552)
Other 49 34 23
Foreign currency translation
adjustment (753) 773 612
------- ------- -------
Annualized premiums in force,
at end of year $ 8,314 $ 8,395 $ 6,931
======= ======= =======
INVESTMENTS AND INVESTMENT RESULTS
The following table shows an analysis of investment securities (at cost
or amortized cost) at December 31:
AFLAC Japan AFLAC U.S.
(In millions) 2000 1999 2000 1999
----------------- -----------------
Securities available for sale:
Fixed maturities $16,757 $15,491 $ 3,648* $ 3,405*
Perpetual debentures 2,173 2,411 174 153
Equity securities 64 45 97 92
------ ------ ------ ------
Total available for sale 18,994 17,947 3,919 3,650
------ ------ ------ ------
Securities held to maturity:
Fixed maturities 3,645 4,389 - -
Perpetual debentures 3,442 3,903 - -
------ ------ ------ ------
Total held to maturity 7,087 8,292 - -
------ ------ ------ ------
Total investment securities $26,081 $26,239 $ 3,919 $ 3,650
====== ====== ====== ======
*Includes securities held by the parent company of $262 in 2000 and $240 in
1999.
I-3
<PAGE>
Net investment income was $1.6 billion in 2000, $1.4 billion in 1999
and $1.1 billion in 1998.
AFLAC invests primarily within the Japanese, U.S. and Euroyen debt
securities markets. We are exposed to credit risk in our investment
activity. Credit risk is a consequence of extending credit and/or carrying
investment positions. We require all securities to have an initial rating
of Class 1 or 2 as determined by the Securities Valuation Office of the
National Association of Insurance Commissioners. Most of AFLAC's private
placement issues are issued under medium-term note programs and have
standard covenants commensurate with credit rankings, except when internal
credit analysis indicates that additional protective and/or event risk
covenants are required.
Private placement investments held by AFLAC Japan at amortized cost
accounted for $14.3 billion, or 48.0%, and $13.6 billion, or 45.8%, of total
debt securities at December 31, 2000 and 1999, respectively. Of the total
private placements, reverse-dual currency debt securities (principal
payments in yen, interest payments in dollars) accounted for $4.8 billion
and $4.9 billion at amortized cost as of December 31, 2000 and 1999,
respectively.
In recent years we have purchased subordinated perpetual debenture
securities issued primarily by European and Japanese banks. These
securities are subordinated to other debt obligations of the issuer, but
rank higher than equity securities. Although these securities have no
contractual maturity, the issue-date fixed-rate interest coupons
subsequently increase to a market-interest rate plus 150 to 300 basis points
and change to a variable-interest rate basis, generally by the 25th year
after issuance, thereby creating an economic maturity date.
The issuers of two debt securities held in our investment portfolio
experienced significant credit rating downgrades during the first half of
2000. During the second quarter of 2000, we sold one security carried in
the available-for-sale category at a pretax loss of $34 million. We
recorded a pretax impairment loss of $57 million on the other security,
which was carried in the held-to-maturity category. We also reclassified
this security to the available-for-sale category. These losses, which were
included in realized investment losses, decreased net earnings by $58
million ($.11 per basic and diluted share) for the year ended December 31,
2000.
For information on the composition of our investment portfolio and
investment results, see Exhibit 13, pages 13-11 and 13-14 to 13-26
(discussions relating to investments, balance sheet and cash flow) and pages
13-45 to 13-55 (Notes 3 and 4 of the Notes to the Consolidated Financial
Statements), which are incorporated herein by reference.
INVESTMENTS - JAPAN
AFLAC Japan had approximately 357.3 billion yen ($3.1 billion)
available for investment in 2000. Of this amount, 95.1% was invested in
yen-denominated securities at an average yield of 3.57%. We invested 91.0%
in longer-dated securities at an average rate of 3.64%. Our longer-dated
investments include purchases of reverse dual-currency bonds (yen principal
securities that pay a dollar coupon) at an average yield of 4.80%. An
I-4
<PAGE>
additional 4.1% was invested in yen-denominated securities of various other
sectors. Dollar-denominated securities accounted for the remaining 4.9% of
the purchases in 2000 at an average yield to maturity of 7.88%.
The following is the composition of total investments and cash (at cost
or amortized cost) for AFLAC Japan as of December 31:
2000 1999
-------- --------
Debt securities:
Government and guaranteed 27.8% 28.8%
Municipalities 2.6 3.5
Public utilities 15.9 15.0
Banks/financial institutions 39.0 38.8
Other corporate 12.6 11.5
Equity securities .2 .2
Cash and cash equivalents 1.9 2.2
------ ------
100.0% 100.0%
====== ======
We use specific criteria to judge the credit quality and liquidity of
our investments and a variety of credit rating services to monitor these
criteria. Applying those various credit ratings to a standardized rating
system based on the categories of a nationally recognized rating service,
the percentages of AFLAC Japan's debt securities, at amortized cost, as of
December 31 were as follows:
2000 1999
------ ------
AAA 26.6% 30.2%
AA 22.7 24.9
A 34.6 30.5
BBB 15.5 12.4
BB .6 2.0
----- -----
100.0% 100.0%
===== =====
Japan's life insurance industry has contended with low investment
yields for the last several years. Despite a series of premium rate
increases designed to help offset the effect of lower yields, four Japanese
life insurance companies have been declared insolvent since 1997 and two
more applied for court protection or assistance in 2000. As a result, more
attention has been paid to the composition of the life insurance industry's
assets. Our asset allocation is much different than the industry as a whole
and, we believe, is better suited to a low interest rate environment. Based
on March 31, 2000, Japanese Financial Services Agency (FSA) data, AFLAC had
the highest portfolio yield among all of Japan's life insurers with assets
in excess of 2 trillion yen. AFLAC earned this distinction while
maintaining an investment portfolio in which 99.4% of the securities are
investment grade.
Our investments in the Japanese equity and investment real estate
markets continued to be immaterial in 2000.
I-5
<PAGE>
INVESTMENTS - U.S.
Profits repatriated from AFLAC Japan to AFLAC U.S. totaled $157 million
in 2000, compared with $243 million in 1999 and $154 million in 1998.
Including profit repatriation and bond swaps, AFLAC U.S. invested $904
million in 2000. Of that amount, approximately 19.2% was invested in U.S.
government or agency securities at an average yield of 7.59%, and 77.5% was
invested in corporate fixed-maturity securities at 7.95%. The remaining
3.3% was invested in equities.
The following is the composition of total investments and cash (at cost
or amortized cost) for AFLAC U.S. as of December 31:
2000 1999
-------- --------
Debt securities:
U.S. Government 3.3% 3.7%
Municipalities .5 .5
Mortgage-backed securities 8.8 3.0
Public utilities 6.0 5.0
Sovereign and supranational 2.4 4.4
Banks/financial institutions 42.6 44.5
Other corporate 32.9 35.7
Equity securities 2.4 2.5
Cash and cash equivalents 1.1 .7
------ ------
100.0% 100.0%
====== ======
AFLAC U.S. debt securities, at amortized cost, as of December 31 were
rated as follows:
2000 1999
------ ------
AAA 13.8% 11.3%
AA 20.9 22.5
A 51.9 56.1
BBB 12.5 10.1
BB .9 -
----- -----
100.0% 100.0%
===== =====
INSURANCE - JAPAN
AFLAC Japan's earned premiums by product lines are included in Note 2
of the Notes to the Consolidated Financial Statements, Exhibit 13, page 13-
40.
I-6
<PAGE>
The following table presents the changes in annualized premiums in
force for AFLAC Japan for the years ended December 31:
(In millions) 2000 1999 1998
-------- -------- --------
Annualized premiums in force,
at beginning of year $ 6,803 $ 5,538 $ 4,595
Policies sold including
policy conversions 921 765 579
Change in unprocessed
policies (176) 20 (25)
Lapses and surrenders (334) (281) (212)
Other (9) (12) (11)
Foreign currency translation
adjustment (753) 773 612
-------- -------- --------
Annualized premiums in force,
at end of year $ 6,452 $ 6,803 $ 5,538
======== ======== ========
We experienced a slight increase in the lapse and surrender ratios in
2000 and 1999 compared with 1998 due to the poor economic conditions in
Japan.
INSURANCE PLANS - JAPAN
AFLAC's insurance products are designed to provide supplemental
coverage for medical and nonmedical costs that are not reimbursed under
Japan's health insurance system.
The cancer life insurance plans we offer in Japan provide a fixed daily
indemnity benefit for hospitalization and outpatient services related to
cancer and a lump-sum benefit upon initial diagnosis of internal cancer. The
plans differ from the AFLAC U.S. cancer plans (described on page I-12 and
I-13) in that the Japanese policies also provide death benefits and cash
surrender values (we estimate that approximately 27% of the premiums earned
from all cancer life plans are associated with these benefits). In mid-
2000, we began selling new, lower-premium cancer life and care products to
meet the needs of cost-sensitive buyers. Approximately 29% of new cancer
life and 59% of care policy sales were from the lower-premium products. At
the end of 2000, we introduced a major revision to our cancer life policy.
This new product, called 21st Century Cancer Life, offers a variety of
coverage choices to our customers. As a result, employers will be able to
offer a customized AFLAC cancer life policy to suit the needs of their
workers. Rider MAX, which provides accident and medical/sickness benefits
as a rider to our cancer life policy, has been extremely popular since its
introduction in 1998.
Care insurance provides periodic benefits to those who become
bedridden, demented or seriously disabled due to illness or accident. Prior
to the introduction of this care plan, we marketed a policy that primarily
provided dementia care benefits.
Our medical expense policy is similar to hospital indemnity insurance
products in the United States. It provides cash benefits to policyholders
when they are hospitalized and offers a maximum hospitalization benefit of
1,000 days.
I-7
<PAGE>
The living benefit life plan is a life insurance policy that provides
lump-sum benefits when policyholders experience heart attack, cancer or
stroke. We are offering this product as a stand-alone policy or as a rider
to the cancer life plan. As a rider, it adds heart attack and stroke
benefits to the cancer life policy. Marketing efforts for living benefit
life primarily focus on selling the plan as a rider.
AFLAC Japan's sales mix, as measured in yen, has changed during the
last few years. Cancer life sales accounted for 40.3% of total sales in
2000, 46.7% in 1999 and 49.7% in 1998. Rider MAX accounted for 41.2% of
sales in 2000, 39.6% in 1999 and 33.0% in 1998. Ordinary life and annuities
accounted for 13.6% of sales in 2000 compared with 7.8% in 1999 and 3.8% in
1998.
Due to the continued low level of available investment yields in Japan,
industry regulators have directed insurers to increase premium rates on new
policy issues in recent years. For further information, see Exhibit 13,
page 13-11 of the Management's Discussion and Analysis.
JAPANESE ECONOMY
For the last several years, Japan has been working to overcome its
depressed economy. The financial strength of many Japanese businesses
continued to deteriorate in 2000 with some experiencing bankruptcy or
requesting financial protection or assistance. As we have indicated in the
past, Japan's weak economy has created a challenging environment for AFLAC
Japan, as yields available for new investments remain at very low levels and
consumer confidence continues to lag. The time required for the Japanese
economy to fully recover remains uncertain.
DISTRIBUTION - JAPAN
The "corporate agency" system has been important to the growth of AFLAC
Japan. Affiliated corporate agencies are formed when companies establish
subsidiary businesses to sell AFLAC products to their employees, suppliers
and customers. These agencies help us reach the employees of almost all of
Japan's large corporations.
We also sell our products through independent corporate agencies and
individual agencies that are not affiliated with large companies. As of
December 31, 2000, there were 8,938 agencies in Japan with more than 43,300
licensed agents, compared with 8,283 agencies and 41,400 licensed agents in
1999. Agents' activities are principally limited to insurance sales, with
policyholder service functions handled by the main office in Tokyo and 85
offices throughout Japan.
In the third quarter of 2000, AFLAC Japan and Dai-ichi Mutual Life
Insurance Company (Dai-ichi Life) agreed to a major marketing alliance that
anticipates the sale of each company's products through the respective
distribution systems. The initial focus will be the sale of AFLAC Japan's
cancer life and Rider MAX products through Dai-ichi Life's sales force of
50,000 people. Sales through Dai-ichi Life commenced in the second half of
March 2001.
I-8
<PAGE>
COMPETITION - JAPAN
In 1974, AFLAC became the second foreign (non-Japanese) life insurance
company to gain direct access to the Japanese insurance market by obtaining
a license to do business in Japan. Through 1981, we were the only company
in Japan authorized to sell a cancer life insurance policy. As of December
31, 2000, 17 other life companies offered stand-alone cancer insurance.
Trade talks in 1994 and 1996 between the governments of the United
States and Japan, and Japan's 1996 plan for a financial "Big Bang," produced
a framework for the deregulation of the Japanese insurance industry. These
measures called for the gradual liberalization of the industry through the
year 2001 and included provisions to avoid "radical change" in the third
sector of the insurance industry. AFLAC, other foreign-owned insurers and
many small to medium-sized Japanese insurers operate primarily in the third
sector.
Effective January 1, 2001, additional insurance companies were
permitted to sell the type of third-sector products that AFLAC Japan
currently offers. Eight additional insurance companies began offering
cancer expense plans in January 2001. We anticipate that by July 1, 2001,
all insurance companies will be permitted to compete in the third sector.
As a result, we expect competition to increase. However, we also
expect increased product and distribution opportunities for AFLAC Japan. In
order to respond to the expected increase in competition and the
opportunities available to us, we have taken action to expand our marketing
initiatives and enhance our competitiveness.
We plan to continue expanding our distribution system through the
addition of new agencies. In support of this objective, we introduced a new
commission contract that provides increased first-year commissions to
attract new agents. Additionally, we will continue to aggressively promote
our brand and products through advertising. We plan on improving the
products we offer and introducing new ones. We will invest in new
technologies, including our laptop sales aid, to maintain our cost and
service advantages.
However, we believe we will remain the leading provider of cancer life
insurance coverage in Japan, principally due to our long experience in the
market, low-cost operations, unique marketing system (see Distribution -
Japan) and product expertise developed in the United States. AFLAC has had
a great deal of success selling cancer life policies in Japan, with 13.7
million cancer life policies in force at December 31, 2000.
We recognize that we will face increasing competition in the future,
and we continue to look for ways to improve. At the same time, we believe
companies will find it difficult to compete with us because our low-cost
structure allows us to provide competitive benefits and services to
policyholders and above-average compensation to our sales force. For
further information, see Exhibit 13, page 13-12, of the Management's
Discussion and Analysis.
I-9
<PAGE>
REGULATION AND REMITTANCE OF FUNDS - JAPAN
Payments are made from AFLAC Japan to the Parent Company for management
fees and to AFLAC U.S. for allocated expenses and remittances of earnings.
Total payments received from AFLAC Japan were $199 million in 2000, $282
million in 1999 and $192 million in 1998. These amounts included annual
profit transfers from AFLAC Japan of $157 million in 2000, $243 million in
1999, and $154 million in 1998. In light of deregulation of the insurance
market, we elected to repatriate less than the maximum amount of profits
available in 2000 in order to maintain a stronger solvency margin in Japan.
In 2000, the maximum amount we could have repatriated was $351 million. We
repatriated the maximum amounts in 1999 and 1998.
A portion of AFLAC Japan's annual earnings, as determined on a Japanese
statutory accounting basis, can be remitted each year to AFLAC U.S. after
complying with solvency margin provisions and satisfying various conditions
imposed by Japanese regulatory authorities for protecting policyholders.
The Japanese Financial Services Agency (FSA) maintains its own solvency
standards, a version of risk-based capital requirements, which are used by
regulators in Japan to monitor the financial strength of insurance
companies. The FSA may not allow transfers of funds if the payment would
cause AFLAC Japan to lack sufficient financial strength for the protection
of policyholders. AFLAC Japan's solvency margin significantly exceeds
regulatory minimums and we do not expect these requirements to adversely
affect the funds available for repatriation from Japan.
Repatriated profits represent a portion of the after-tax earnings
reported to the FSA on a March 31 fiscal year basis. Japanese regulatory
basis earnings are determined using accounting principles that differ
materially from U.S. generally accepted accounting principles. Under
Japanese statutory accounting practices, policy acquisition costs are
charged off immediately, policy benefit and claim reserving methods are
different, policyholder protection fund obligations are not accrued,
deferred income tax liabilities are recognized on a different basis, and
investment securities are carried at cost less certain market value
adjustments for foreign exchange losses on dollar-denominated securities.
Additionally, accounting standards for financial instruments are in the
process of being revised in Japan. Japanese regulatory earnings and related
profit repatriations may therefore vary materially from year to year because
of these changes.
Effective with the Japanese reporting fiscal year ending March 31,
2002, AFLAC Japan will be required to adopt a new Japanese statutory
accounting standard regarding fair value accounting for investments.
Currently, debt securities are generally recorded at amortized cost for FSA
purposes. Under the new accounting standard, AFLAC Japan will be required
to record debt securities in four categories: at fair value in an available-
for-sale category, at amortized cost in a held-to-maturity category, at
amortized cost in a special category for securities held for long-term
holding purposes, or at fair value in a trading category.
Under this new regulatory accounting standard, the unrealized gains and
losses on debt securities available for sale will be reported in FSA capital
and surplus. This new accounting method may result in significant
fluctuations in FSA equity, in the AFLAC Japan solvency margin and in
amounts available for annual profit repatriation.
I-10
<PAGE>
The insurance business in Japan, which is conducted as a branch office
of AFLAC, is subject to regulation by the FSA, similar to the regulation and
supervision in the United States as described on pages I-15 and I-16 under
"Regulation - U.S." AFLAC Japan files annual reports and financial
statements for the Japanese insurance operations based on a March 31 year-
end, prepared in accordance with Japanese regulatory accounting practices
prescribed or permitted by the FSA. Also, financial and other affairs of
AFLAC Japan are subject to examination by the FSA.
Reconciliations of AFLAC Japan net assets on a GAAP basis to net assets
determined on a Japanese regulatory accounting basis as of December 31 were
as follows:
(In millions - unaudited) 2000 1999
-------- --------
Net assets on GAAP basis $ 3,633 $ 3,118
Elimination of deferred policy
acquisition costs (2,706) (2,856)
Elimination of unrealized gains and
other adjustments to carrying value
of debt securities (2,633) (2,762)
Adjustment to policy liabilities 733 1,553
Adjustment to income tax liabilities 1,683 1,503
Reduction in premiums receivable (181) (146)
Policyholder protection fund 227 262
Other, net 21 (34)
-------- --------
Net assets on Japanese regulatory
accounting basis $ 777 $ 638
======== ========
In 1998, the Japanese government established the Life Insurance
Policyholders Protection Corporation. Funding by the life insurance
industry, as determined by government legislation, is made over a 10-year
period. We recognize charges for our estimated share of any assessment as
funding legislation is enacted. We periodically review our estimated
liability for policyholder protection fund assessments based on updated
information and any adjustments are reflected in net earnings.
In October 2000, two Japanese life insurance companies filed
applications for court protection under a special reorganization law for
financial institutions. Japanese government officials have indicated that
they do not expect to impose any additional protection fund assessments on
the insurance industry for the financial problems of these insurers. There
can be no assurance, however, that such assessments will not be imposed.
For further information regarding the policyholder protection fund, see
Exhibit 13, page 13-40, Note 2 of the Notes to the Consolidated Financial
Statements.
Two tax rate reductions in 1998 and 1999 lowered AFLAC Japan's tax rate
from 45.3% to 41.7% and from 41.7% to 36.2%, respectively. The 1999
reduction in the Japanese corporate income tax rate did not significantly
change our combined U.S./Japan effective tax rate due to the operation of
the U.S. foreign tax credit provisions.
For further information on the tax rate reductions, see Exhibit 13,
page 13-59, Note 7 of the Notes to the Consolidated Financial Statements.
I-11
<PAGE>
For additional information regarding AFLAC Japan's operations, see
Exhibit 13, pages 13-9 to 13-13 (AFLAC Japan section of MD&A) and pages 13-
40 and 13-65 (Notes 2 and 9 of Notes to the Consolidated Financial
Statements), which are incorporated herein by reference.
EMPLOYEES - JAPAN
AFLAC Japan had 2,503 full-time employees at December 31, 2000. AFLAC
Japan considers its employee relations to be excellent.
INSURANCE - U.S.
AFLAC's U.S. earned premiums by product line are summarized in Note 2
of the Notes to the Consolidated Financial Statements in Exhibit 13, page
13-40.
The following table sets forth the changes in annualized premiums in
force for AFLAC U.S. insurance for the years ended December 31.
(In millions) 2000 1999 1998
------ ------ ------
Annualized premiums in force at
beginning of year $ 1,592 $ 1,393 $ 1,216
Policies sold including
policy conversions 712 555 482
Change in unprocessed policies (3) 1 1
Lapses (497) (403) (340)
Other 58 46 34
------ ------ ------
Annualized premiums in force at
end of year $ 1,862 $ 1,592 $ 1,393
====== ====== ======
HEALTH INSURANCE PLANS - U.S.
AFLAC's insurance is designed to provide supplemental coverage for
people who already have major medical or primary insurance coverage. Our
supplemental health insurance plans are guaranteed-renewable for the
lifetime of the policyholder (to age 70 for short-term disability policies).
We cannot cancel guaranteed-renewable coverage, but we can increase premium
rates on existing and future policies by class of policy in response to
claims experience higher than originally expected (subject to federal and
state loss-ratio guidelines) on a uniform, nondiscriminatory basis. Any
premium rate increases are subject to state regulatory approval.
AFLAC's cancer plans are designed to provide insurance benefits for
medical and nonmedical costs that are generally not reimbursed by major
medical insurance. We currently offer three cancer plans in the United
States that vary by benefit amount. Each plan provides a first-occurrence
benefit that pays an initial amount when internal cancer is first diagnosed,
a fixed amount for each day an insured is hospitalized for cancer treatment,
and benefits for medical, radiation, chemotherapy, surgery and a "wellness"
benefit applicable toward certain diagnostic tests such as mammograms, pap
smears, prostate exams, flexible sigmoidoscopy, etc. Each plan also
I-12
<PAGE>
contains benefits that reimburse the insured for certain direct expenses
related to cancer treatment, up to specified policy limits. We also sell
several riders, including one that increases the amount of the first-
occurrence benefit on each rider anniversary date until the covered person
reaches age 65 or until internal cancer is diagnosed. AFLAC periodically
introduces new forms of coverage based on the anticipated needs of
policyholders and our claim experience.
We offer an accident and disability policy to protect against losses
resulting from accidents. The accident portion of the policy includes lump-
sum benefits for accidental death, dismemberment and specific injuries.
Fixed benefits for hospital confinement, emergency treatment, follow-up
treatments, ambulance, transportation, family lodging, wellness, prosthesis,
medical appliances and physical therapy are also provided. Optional
disability riders are available to the primary insured and include choices
of a sickness disability rider, on-the-job disability rider and off-the-job
disability rider. These benefits are payable up to a maximum benefit period
of one year and for one disability at a time. Short-term disability
policies provide similar disability benefits offered with a variety of
elimination period/benefit period options. The longest such benefit period
offered is two years.
In July 2000, we began offering a series of dental policies, providing
various levels of benefits for dental procedures, including check-ups and
cleanings. Plan features include a renewal guarantee, no deductible and the
flexibility to choose your dentist. The policies are portable and pay
regardless of other insurance.
AFLAC also offers other supplemental health insurance, such as
intensive care, which is a low-premium policy that provides protection
against the high cost of intensive care facilities during hospital
confinement, regardless of reimbursements from other insurers. Other types
of health insurance include qualified and non-qualified long-term care
plans, a hospital confinement indemnity policy, and a new specified health
event policy.
The sales mix in the United States has been relatively constant the
last few years. Accident/disability coverage continued to be our best-
selling product, accounting for approximately 55% of sales in 2000 and 56%
of sales in both 1999 and 1998. Cancer expense insurance accounted for 23%
to 25% of sales during the three-year period ending December 31, 2000. Our
newest product, dental insurance, generated 3.4% of sales in 2000.
LIFE INSURANCE PLANS - U.S.
AFLAC offers term and whole life policies sold through payroll
deduction at the worksite. We also sell various term and whole life
policies on a direct basis. AFLAC also offers a voluntary group term life
plan.
DISTRIBUTION - U.S.
Our sales force is composed of independent sales agents who are
licensed to sell accident and health insurance. Many are also licensed to
sell life insurance. Most agents' efforts are directed toward selling
I-13
<PAGE>
supplemental health insurance at the worksite. The average number of U.S.
agents actively producing business on a monthly basis during 2000 was
10,757, compared with 8,807 in 1999 and 7,918 in 1998.
Agents' activities are principally limited to sales. Policyholder
service functions, including issuance of policies, premium collection,
payment notices and claims are handled by the staff at headquarters. Agents
are paid commissions based on first-year and renewal premiums from their
sales of insurance products. State, regional and district sales
coordinators are also independent contractors, and are compensated by
override commissions and bonuses.
We have concentrated on marketing our products at the worksite. This
method offers policies to individuals through common media such as
employment, trade and other associations. This manner of marketing is
distinct from "group" insurance sales in that each individual insured is
directly contacted by the sales associate. Policies are individually
underwritten, with premiums generally paid by the employee. Additionally,
AFLAC supplemental policies are portable, meaning that individuals may
retain their full insurance coverage upon separation from employment or such
affiliation, generally at the same premium. A major portion of premiums on
such sales are collected through payroll deduction or other forms of
centralized billings. Worksite-marketed plans normally result in a lower
average age of the insured at the time of policy issuance and also result in
certain savings in administrative costs, a portion of which is passed on to
the policyholder in the form of reduced premiums. Marketing at the worksite
enables the agency force to reach a greater number of prospective
policyholders than individual solicitation and lowers distribution costs.
Another valuable marketing and sales tool is the flexible benefits
program, or cafeteria plan, which allows an employee to pay for medical
insurance using pretax dollars. These programs help achieve increased
penetration, as agents are required to present the program to all employees.
They also help improve overall persistency levels due to the limited changes
allowed during the plan year.
We continue to develop marketing arrangements with large insurance
brokers. Large insurance brokers generally have better access to larger
groups than independent agents. However, the core of our distribution
network will remain independent agents.
In 2000, AFLAC's U.S. collected premiums were $1.5 billion, 7.4% of
which was collected in Texas, 6.3% in Florida, 5.5% in Georgia, 5.4% in
North Carolina and 5.2% in California. Collected premiums in all other
states were individually less than 5% of AFLAC's U.S. premiums.
COMPETITION - U.S.
The supplemental health and life insurance industry in the United
States is highly competitive. AFLAC competes with a large number of
insurers, some of which have been in business for a longer period of time.
In the United States, there are approximately 2,000 life and accident and
health insurance companies.
Private insurers and voluntary and cooperative plans, such as Blue
Cross and Blue Shield, provide insurance for meeting basic hospitalization
I-14
<PAGE>
and medical expenses. Much of this insurance is sold on a group basis. The
federal and state governments also pay substantial costs of medical
treatment through Medicare and Medicaid programs. Such major medical
insurance generally covers a substantial amount of the medical (but not
nonmedical) expenses incurred by an insured as a result of accident and
disability, cancer or other major illnesses. AFLAC's policies are designed
to provide coverage that is supplemental to coverage provided by major
medical insurance. Our benefits may also be used to defray nonmedical
expenses.
Primary insurers generally do not provide full coverage of medical
expenses or any coverage of nonmedical expenses. Therefore, our
supplemental insurance is not an alternative to major medical insurance.
Rather, it is sold to complement (supplement) major medical insurance by
helping cover the gap between major medical insurance reimbursements and an
individual's total health care costs. Thus, we compete only indirectly with
major medical insurers in terms of premium rates and similar factors.
However, the scope of major medical coverage offered by other insurers does
represent a limitation on the market for our products. Accordingly,
expansion of coverage by other insurers, or governmental programs, could
adversely affect our business opportunities. Conversely, any reduction of
coverages, such as increased deductibles and co-payments, by other insurers
or governmental programs could favorably affect our business opportunities.
We compete directly with other insurers that offer supplemental health
and life insurance and believe that our policies and premium rates are
generally competitive with those offered by other companies selling similar
types of insurance.
For additional information regarding U.S. insurance operations, see
Exhibit 13, pages 13-13 to 13-14 (AFLAC U.S. section of MD&A), which is
incorporated herein by reference.
REGULATION - U.S.
The Parent Company and its insurance subsidiaries are subject to state
regulations in the United States as an insurance holding company system.
Such regulations generally provide that transactions between companies
within the holding company system must be fair and equitable. In addition,
transfer of assets among such affiliated companies, certain dividend
payments from insurance subsidiaries and material transactions between
companies within the system are subject to prior notice to, or approval by,
state regulatory authorities.
AFLAC and its subsidiaries, in common with all U.S. insurance
companies, are subject to regulation and supervision in the states and other
jurisdictions in which they do business. In general, the insurance laws of
the various jurisdictions establish supervisory agencies with broad
administrative powers relating to, among other things: granting and revoking
licenses to transact business, regulating trade practices, licensing agents,
prior approval of forms of policies and premium rate increases, standards of
solvency and maintenance of specified policy benefit reserves and minimum
loss ratio requirements, capital for the protection of policyholders,
limitations on dividends to shareholders, the nature of and limitations on
investments, deposits of securities for the benefit of policyholders, filing
of financial statements prepared in accordance with statutory insurance
I-15
<PAGE>
accounting practices prescribed or permitted by regulatory authorities, and
periodic examinations of the market conduct, financial, and other affairs of
insurance companies.
Also, there are various ongoing regulatory initiatives by the National
Association of Insurance Commissioners (NAIC) relating to insurance
products, investments, revisions to the risk-based capital formula and other
actuarial and accounting matters.
The NAIC recodified Statutory Accounting Principles (SAP) to promote
standardization throughout the industry. These new accounting principles
were effective January 1, 2001, and are to be applied prospectively.
Previously, prescribed or permitted SAP could vary among states and among
companies. The transition adjustments to adopt the new accounting
principles increased statutory net assets by approximately $130 million as
of January 1, 2001.
The NAIC uses a risk-based capital formula relating to insurance risk,
business risk, asset risk and interest rate risk to facilitate
identification by insurance regulators of inadequately capitalized insurance
companies based upon the types and mixtures of risks inherent in the
insurer's operations. The formulas for determining the amount of risk-based
capital specify various weighting factors that are applied to financial
balances or various levels of activity based on the perceived degree of
risk. Regulatory compliance is determined by a ratio of the company's
regulatory total adjusted capital to its authorized control level risk-based
capital as defined by the NAIC. Companies below specific trigger points or
ratios are classified within certain levels, each of which requires
specified corrective action. The levels are company action, regulatory
action, authorized control and mandatory control. AFLAC's NAIC risk-based
capital ratio remains high and reflects a very strong capital and surplus
position.
Two states, Massachusetts and New Jersey, have laws, regulations or
regulatory practices that either prohibit the sale of specified disease
insurance, such as our cancer expense insurance, or make its sale
impractical. The remainder of the states do not impose prohibitions or
restrictions that prevent us from marketing cancer expense insurance. AFLAC
U.S. is marketing several of its other products in Massachusetts and New
Jersey.
Under insurance guaranty fund laws in most U.S. states, insurance
companies doing business in those states can be assessed for policyholder
losses up to prescribed limits that are incurred by insolvent companies with
similar lines of business. Such assessments have not been material to us in
the past. We believe that future assessments relating to companies in the
United States currently involved in insolvency proceedings will not
materially impact the consolidated financial statements.
For further information concerning state regulatory and dividend
restrictions, see Exhibit 13, page 13-65 (Note 9, Statutory Accounting and
Dividend Restrictions of Notes to the Consolidated Financial Statements),
incorporated herein by reference.
I-16
<PAGE>
EMPLOYEES - U.S.
In the U.S. insurance operations, we had 2,512 full-time employees at
December 31, 2000. We consider our employee relations to be excellent.
POLICY LIABILITIES - JAPAN AND U.S.
The reserves for policy liabilities reported in the financial
statements have been computed in accordance with generally accepted
accounting principles (GAAP). These reserves differ from those reflected in
the various regulatory financial statements filed by the Company. Such
differences arise from the use of different mortality, morbidity, interest
and lapse assumptions, and actuarial reserving methods as required by the
laws of the various states and Japan.
OTHER OPERATIONS
The Company's other operations include the parent company and a
printing subsidiary. These operations had 263 full-time employees at
December 31, 2000.
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
discussed. We desire to take advantage of these provisions. This report
contains cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in this Form
10-K and in any other statements made by company officials in oral
discussions 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. In
particular, statements containing words such as "expect," "anticipate,"
"believe," "goal," "objective" 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 in our reports filed with the SEC, could
cause actual results to differ materially: regulatory developments,
assessments for insurance company insolvencies, competitive conditions, new
products, ability to repatriate profits from Japan, general economic
conditions in the United States and Japan, changes in U.S. and/or Japanese
tax laws or accounting requirements, adequacy of reserves, credit and other
risks associated with AFLAC's investment activities, significant changes in
interest rates, and fluctuations in foreign currency exchange rates.
I-17
<PAGE>
ITEM 2. PROPERTIES
AFLAC owns an 18-story office building, which serves as its worldwide
headquarters, and a five-story administrative office building located on
approximately 14 acres of land in Columbus, Georgia. We also own a six-
story parking garage, two additional buildings located on the same property
and additional administrative office buildings. An insurance subsidiary
occupies leased office space in Albany, New York.
A new administrative office building is under construction in Columbus,
Georgia. Construction is expected to be completed during the second quarter
of 2001 at an estimated cost of $42 million.
In Tokyo, Japan, AFLAC owns an 11-story administrative office building
and a training facility. AFLAC also leases office space in Tokyo along with
regional sales offices located throughout the country.
ITEM 3. LEGAL PROCEEDINGS
We are a defendant in various litigation considered to be in the normal
course of business. Some of this litigation is pending in Alabama, where
large punitive damages bearing little relation to the actual damages
sustained by plaintiffs have been awarded against other companies, including
insurers, in recent years. Although the final results of any litigation
cannot be predicted with certainty, we believe the outcome of pending
litigation will not have a material adverse effect on our financial
position, results of operations, or cash flows.
I-18
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the security holders for a vote in
the fourth quarter ended December 31, 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
NAME PRINCIPAL OCCUPATION (*) AGE
- ------------------- ------------------------------------- ---
Paul S. Amos Chairman, AFLAC Incorporated and 74
American Family Life Assurance
Company of Columbus (AFLAC)
Daniel P. Amos Chief Executive Officer, AFLAC 49
Incorporated and AFLAC; President,
AFLAC Incorporated and AFLAC;
Director, The CIT Group, Inc.,
Livingston, NJ; Director, Georgia
Power Company, Atlanta, GA; Director,
Southern Company, Atlanta, GA
Monthon Chuaychoo Vice President, Financial Services, 57
AFLAC Incorporated and AFLAC
Kriss Cloninger III Executive Vice President, Chief 53
Financial Officer, AFLAC
Incorporated and AFLAC;
Treasurer, AFLAC Incorporated
Kermitt L. Cox Senior Vice President, Corporate Actuary 57
since August 1998; Vice President,
Corporate Actuary until August 1998
Norman P. Foster Executive Vice President, Corporate 66
Finance, AFLAC Incorporated
and AFLAC
Kenneth S. Janke Jr. Senior Vice President, Investor 42
Relations, AFLAC Incorporated
Akitoshi Kan Executive Vice President, Internal 53
Operations, AFLAC U.S., since January
2000; Deputy Chief Financial Officer,
AFLAC Incorporated since April 1999
until September 2000; Executive Vice
President, AFLAC International until
December 1999; Executive Vice President,
AFLAC Japan since January 1998 until
March 1999 and Deputy Chief Financial
Officer, AFLAC, Senior Vice President,
AFLAC Japan, Accounting, Information
Systems, ABC and Legal Affairs until
March 1999; Senior Vice President,
AFLAC Japan, Accounting, Corporate
Planning, Audit, and Legal Affairs
until January 1997
I-19
<PAGE>
Joseph P. Kuechenmeister Senior Vice President, Director 59
of Marketing, AFLAC
Joey M. Loudermilk Executive Vice President, General Counsel 47
and Corporate Secretary, AFLAC
Incorporated and AFLAC; Director, Legal
and Governmental Relations, AFLAC, since
October 2000; Senior Vice President, General
Counsel and Corporate Secretary, AFLAC
Incorporated and AFLAC; Director, Legal
and Governmental Relations, AFLAC, until
October 2000
Hidefumi Matsui President, AFLAC Japan 56
Shoichi Matsumoto Executive Vice President, Director 55
of Marketing, AFLAC Japan, since January
1998; Senior Vice President, Director of
Marketing, AFLAC Japan, until January 1998;
Senior Vice President, AFLAC Japan, until
July 1997; Vice President, Assistant
Director of Marketing, AFLAC Japan, until
January 1996
Minoru Nakai Chairman, AFLAC International, Inc. since 59
September 2000; President, AFLAC
International, Inc. until September 2000
Yoshiki Otake Chairman, AFLAC Japan; Vice Chairman, 61
AFLAC International, Inc.
Joseph W. Smith, Jr. Senior Vice President, Chief Investment 47
Officer, AFLAC
Gary L. Stegman Senior Vice President, Financial Operations, 51
AFLAC Incorporated and AFLAC; Treasurer
and Assistant Secretary, AFLAC, since
January 2001; Senior Vice President,
Assistant Chief Financial Officer, AFLAC
Incorporated and AFLAC; Treasurer and
Assistant Secretary, AFLAC until January
2001
Hitoshi Une Executive Vice President, Chief 53
Administrative Officer, AFLAC Japan, since
January 1999; Senior Vice President,
Investment Department until January 1999;
Vice President, Investment Department
until January 1998
(*) Unless specifically noted, the respective executive officer has held
the occupation(s) set forth in the table for at least five years.
Each executive officer is appointed annually by the board of
directors and serves until his successor is chosen and qualified,
or until his death, resignation or removal.
I-20
<PAGE>
PART II
Pursuant to General Instruction G to Form 10-K, Items 5 through 8 are
incorporated by reference from the Company's 2000 Annual Report to
Shareholders, the appropriate sections of which are included herein as
Exhibit 13.
Exhibit 13 Annual Report
Pages Pages
---------- --------------
ITEM 5. MARKET FOR THE COMPANY'S COMMON 13-1; 13-2; 1; 55 (Note 9);
EQUITY AND RELATED SHAREHOLDER 13-65 60 and 63
MATTERS (Note 9)
ITEM 6. SELECTED FINANCIAL DATA 13-3; 13-4 36 - 37
ITEM 7. MANAGEMENT'S DISCUSSION AND 13-5 to 22 - 35
ANALYSIS OF FINANCIAL CONDITION 13-27
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE 13-7 to 23; 28 -
DISCLOSURES ABOUT MARKET RISK 13-8, 13-16 30
to 13-19
ITEM 8. FINANCIAL STATEMENTS AND 13-28 to 38 - 60
SUPPLEMENTARY DATA 13-74
ITEM 9. CHANGES IN AND DISAGREEMENTS None None
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
II-1
<PAGE>
PART III
Pursuant to General Instruction G to Form 10-K, Items 10 through 13 are
incorporated by reference from the Company's definitive Proxy Statement
relating to the Company's 2001 Annual Meeting of Shareholders, which was
filed with the Securities and Exchange Commission on March 16, 2001,
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
Refer to the Information Refer to
Contained in the Proxy Printed
Statement under Captions Proxy
(filed electronically) Statement
Pages
------------------------ ---------
ITEM 10. DIRECTORS AND EXECUTIVE Security Ownership of 3 - 7
OFFICERS OF THE COMPANY Management. 1. Election
Directors of Directors
Executive Officers -
see Part I, Item 4A
herein
ITEM 11. EXECUTIVE COMPENSATION Board and Committee 8 - 19
Meetings and Directors
Compensation; Summary
Compensation Table; De-
fined Benefit Pension
Plan; Retirement Plans
for Key Executives;
Employment Contracts and
Termination of Employ-
ment Arrangements; Option
Grants in 2000; Aggregated
Option Exercises in 2000
ITEM 12. SECURITY OWNERSHIP OF Voting Securities and 2 - 7
CERTAIN BENEFICIAL Principal Holders
OWNERS AND Thereof; Security Owner-
MANAGEMENT ship of Management
1. Election of Directors
ITEM 13. CERTAIN RELATIONSHIPS Certain Transactions 20
AND RELATED and Relationships
TRANSACTIONS
III-1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS Page(s)
-----------
Included in Part II of this report and
incorporated by reference to the following
pages of Exhibit 13:
AFLAC Incorporated and Subsidiaries:
Consolidated Statements of Earnings for 13-28
each of the years in the three-year
period ended December 31, 2000
Consolidated Balance Sheets, at 13-29 -
December 31, 2000 and 1999 13-30
Consolidated Statements of Shareholders' 13-31
Equity, for each of the years in the
three-year period ended December 31, 2000
Consolidated Statements of Cash Flows 13-32 -
for each of the years in the three-year 13-33
period ended December 31, 2000
Consolidated Statements of Comprehensive 13-34
Income for each of the years in the
three-year period ended December 31, 2000
Notes to the Consolidated Financial 13-35 to
Statements 13-71
Report of Independent Auditors 13-73
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Auditors' Report on Financial Statement Schedules IV-5
Schedule II - Condensed Financial Information of IV-6 -
Registrant at December 31, 2000 IV-11
and 1999, and for each of the
years in the three-year period
ended December 31, 2000
Schedule III - Supplementary Insurance Information IV-12
for each of the years in the three-
year period ended December 31, 2000
Schedule IV - Reinsurance for each of the IV-13
years in the three-year period
ended December 31, 2000
Schedules other than those listed above are omitted because they are
not required or are not applicable, or the required information is shown in
the financial statements or notes thereto.
IV-1
<PAGE>
3. EXHIBITS
3.0 - Articles of Incorporation, as amended - incorporated by
reference from Form 10-Q for June 30, 2000, Commission
file number 1-7434, Accession No. 0000004977-00-000038,
Exhibit 3.0.
3.1 - Bylaws of the Company, as amended.
4.0 - There are no long-term debt instruments in which the total
amount of securities authorized exceeds 10% of the total
assets of AFLAC Incorporated and its subsidiaries on a
consolidated basis. We agree to furnish a copy
of any long-term debt instruments to the Securities
and Exchange Commission upon request.
10.0* - American Family Corporation Stock Option Plan (1985) -
incorporated by reference from Registration Statement No.
33-44720 on Form S-8 with respect to the AFLAC Incorporated
(Formerly American Family Corporation) Incentive Stock
Option Plan (1982) and Stock Option Plan (1985).
10.1* - AFLAC Incorporated Amended 1985 Stock Option Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession No.
0000004977-94-000003, Exhibit A.
10.2* - AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.3* - American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1, 1989 -
incorporated by reference from 1993 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-94-000006,
Exhibit 10.2.
10.4* - AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 2001.
10.5* - AFLAC Incorporated Employment Agreement with Daniel P.
Amos, dated August 1, 1993 - incorporated by reference
from 1993 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-94-000006, Exhibit 10.4.
10.6* - American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 - incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
10.7* - AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 - incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-94-000006, Exhibit 10.6.
10.8* - AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 - incorporated by reference from Form
10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.1.
10.9* - AFLAC Incorporated Deferred Compensation Agreement with
Paul S. Amos, dated July 15, 1997 - incorporated by
reference from 1997 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-98-000006, Exhibit 10.11.
IV-2
<PAGE>
10.10* - AFLAC Incorporated 1997 Stock Option Plan, incorporated
by reference from the 1997 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
97-000007, Appendix B.
10.11* - AFLAC Incorporated Executive Deferred Compensation Plan,
effective January 1, 1999 - incorporated by reference
from Form S-8 Registration Statement No. 333-69333,
Accession No. 0000004977-98-00024, Exhibit 4.
10.12* - AFLAC Incorporated Amended and Restated Management
Incentive Plan, effective January 1, 1999 - incorporated
by reference from the 1999 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
99-000007, Exhibit A.
10.13* - AFLAC Incorporated Retirement Agreement with E. Stephen
Purdom, dated February 15, 2000.
12.0 - Statement regarding the computation of ratio of earnings
to fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 2000.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
* Management contract or compensatory plan or agreement.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K for the quarter ended
December 31, 2000.
IV-3
<PAGE>
(c) EXHIBITS FILED WITH CURRENT FORM 10-K
3.1 - Bylaws of the Corporation, as amended.
10.4* - AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 2001.
10.13* - AFLAC Incorporated Retirement Agreement with E. Stephen
Purdom, dated February 15, 2000.
12.0 - Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 2000.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
* Management contract or compensatory plan or agreement.
IV-4
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Shareholders and Board of Directors
AFLAC Incorporated:
Under date of January 26, 2001, we reported on the consolidated balance
sheets of AFLAC Incorporated and subsidiaries as of December 31, 2000, and
1999, and the related consolidated statements of earnings, shareholders'
equity, cash flows, and comprehensive income for each of the years in the
three-year period ended December 31, 2000, as contained in the 2000 annual
report to shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form
10-K for the year 2000. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedules as listed in Item 14. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
KPMG LLP
Atlanta, Georgia
January 26, 2001
IV-5
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
AFLAC Incorporated (Parent Only)
(In millions, except for share amounts)
December 31,
2000 1999
-------- --------
ASSETS:
Investments and cash:
Fixed maturity securities available
for sale (amortized cost $262 in 2000
and $240 in 1999) $ 262 $ 232
Investments in subsidiaries* 5,607 4,898
Other investments 10 9
Cash and cash equivalents 23 17
------- -------
Total investments and cash 5,902 5,156
Due from subsidiaries* 37 29
Other receivables 3 3
Property and equipment, net 5 6
Other assets 70 47
------- -------
Total assets $ 6,017 $ 5,241
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Due to subsidiaries* $ - $ 1
Notes payable 1,048 999
Employee and beneficiary benefit plans 131 250
Income taxes, primarily deferred 80 11
Other liabilities 64 112
------- -------
Total liabilities 1,323 1,373
------- -------
Shareholders' equity:
Common stock of $.10 par value: (In thousands)
Authorized 1,000,000 shares; issued
644,813 shares in 2000 and 640,698
shares in 1999 32 32
Additional paid-in capital 336 310
Retained earnings 3,956 3,356
Accumulated other comprehensive income:
Unrealized foreign currency
translation gains 194 232
Unrealized gains on investment securities 1,474 1,032
Treasury stock, at average cost (1,298) (1,094)
------- -------
Total shareholders' equity 4,694 3,868
------- -------
Total liabilities and
shareholders' equity $ 6,017 $ 5,241
======= =======
* Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-6
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Earnings
AFLAC Incorporated (Parent Only)
(In millions)
Years ended December 31,
2000 1999 1998
-------- -------- --------
Revenues:
Dividends from subsidiaries* $ 234 $ 162 $ 173
Management and service fees
from subsidiaries* 25 26 28
Investment income 12 13 1
Interest from subsidiaries* 2 2 -
Other income (loss) (5) - 1
------ ------ ------
Total revenues 268 203 203
------ ------ ------
Operating expenses:
Interest expense 16 15 10
Release of retirement liability (101) - -
Other operating expenses 38 45 61
------ ------ ------
Total operating expenses (47) 60 71
------ ------ ------
Earnings before income taxes and
equity in undistributed earnings
of subsidiaries 315 143 132
Income tax expense:
Current 8 2 9
Deferred 3 - -
------ ------ ------
Total income taxes 11 2 9
------ ------ ------
Earnings before equity in
undistributed earnings of
subsidiaries 304 141 123
Equity in undistributed earnings
of subsidiaries 383 430 364
------ ------ ------
Net earnings $ 687 $ 571 $ 487
====== ====== ======
*Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-7
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Cash Flows
AFLAC Incorporated (Parent Only)
Years ended December 31,
(In millions) 2000 1999 1998
------ ------ ------
Cash flows from operating activities:
Net earnings $ 687 $ 571 $ 487
Adjustments to reconcile net
earnings to net cash provided
from operating activities:
Equity in undistributed
earnings of subsidiaries* (383) (430) (364)
Change in income taxes payable 9 2 9
Change in liability for employee
and beneficiary benefit plans (119) 15 27
Other, net 10 (20) (2)
----- ----- -----
Net cash provided by
operating activities 204 138 157
----- ----- -----
Cash flows from investing activities:
Fixed maturity securities sold 177 100 -
Fixed maturity securities purchased (204) (341) -
Other investments (acquired) disposed of (2) (6) 10
Other, net (9) (17) (8)
----- ----- -----
Net cash provided (used) by
investing activities (38) (264) 2
----- ----- -----
Cash flows from financing activities:
Proceeds from borrowings 294 446 124
Principal payments under debt obligations (177) (89) (115)
Dividends paid to shareholders (82) (72) (63)
Net change in amount due to/from subsidiaries* (9) - (21)
Purchases of treasury stock (239) (224) (125)
Treasury stock reissued 38 51 40
Proceeds from exercise of stock options 15 16 7
----- ----- -----
Net cash provided (used) by
financing activities (160) 128 (153)
----- ----- -----
Net change in cash and cash equivalents 6 2 6
Cash and cash equivalents at beginning of year 17 15 9
----- ----- -----
Cash and cash equivalents at end of year $ 23 $ 17 $ 15
===== ===== =====
*Eliminated in consolidation.
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-8
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Statements of Comprehensive Income
AFLAC Incorporated (Parent Only)
(In millions)
Years ended December 31,
2000 1999 1998
-------- -------- --------
Net earnings $ 687 $ 571 $ 487
------- ------- -------
Other comprehensive income (loss):
Foreign currency translation
adjustments:
Change in unrealized foreign
currency translation gains (losses)
during year - Parent only 125 (151) (64)
Equity in change in unrealized
foreign currency translation
gains (losses) of subsidiaries
during year (28) 23 (20)
Unrealized gains (losses) on
securities available for sale:
Unrealized holding gains (losses)
arising during the year - parent only 8 (8) -
Equity in unrealized gains (losses)
on investment securities held
by subsidiaries 513 (371) 171
Equity in reclassification adjustment
for realized (gains) losses of
subsidiaries included in net earnings 101 13 3
------ ------ ------
Other comprehensive income (loss)
before income taxes 719 (494) 90
Income tax expense (benefit) related to
items of other comprehensive income 315 (207) 98
------ ------ ------
Other comprehensive income (loss) 404 (287) (8)
------ ------ ------
Total comprehensive income $ 1,091 $ 284 $ 479
====== ====== ======
See the accompanying Notes to Condensed Financial Statements.
See the accompanying Auditors' Report.
IV-9
<PAGE>
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Notes to Condensed Financial Statements
AFLAC Incorporated (Parent Only)
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
AFLAC Incorporated and Subsidiaries (see Part II - Item 8).
(A) NOTES PAYABLE
A summary of notes payable at December 31, 2000 and 1999 follows:
(In millions) 2000 1999
------ ------
6.50% senior notes due April 2009 (principal
amount $450) . . . . . . . . . . . . . . . . . . . . . $ 449 $ 449
1.55% yen-denominated Samurai notes due October
2005 (principal amount 30 billion yen) . . . . . . . . 261 -
Unsecured, yen-denominated notes payable to banks:
Reducing, revolving credit agreement, due July 2001:
2.29% fixed interest rate. . . . . . . . . . . . . . 99 222
Variable interest rate (.78% at December 31, 2000) . 14 31
Revolving credit agreement due November 2002:
1.24% fixed interest rate. . . . . . . . . . . . . . 68 114
Variable interest rate (.73% at December 31, 2000) . 157 138
Short term . . . . . . . . . . . . . . . . . . . . . . - 45
----- -----
Total notes payable. . . . . . . . . . . . . . . . . $1,048 $ 999
===== =====
The aggregate contractual maturities of the notes payable for each of
the years after December 31, 2000, are as follows:
(In millions)
2001 . . . . . . . . . . . . . . . . . . . . . . $ 113
2002 . . . . . . . . . . . . . . . . . . . . . . 225
2005 . . . . . . . . . . . . . . . . . . . . . . 261
2009 . . . . . . . . . . . . . . . . . . . . . . 449
For further information regarding notes payable, see Exhibit 13, page
13-58 (Note 6 of the Notes to the Consolidated Financial Statements).
IV-10
<PAGE>
(B) INCOME TAXES
The Company and its eligible U.S. subsidiaries file a consolidated U.S.
federal income tax return. Income tax liabilities or benefits are recorded
by each principal subsidiary based upon separate return calculations, and
any difference between the consolidated provision and the aggregate amounts
recorded by the subsidiaries is reflected in the Parent Company financial
statements.
For further information on income taxes, see Exhibit 13, page 13-59,
Note 7 of the Notes to the Consolidated Financial Statements.
(C) DIVIDEND RESTRICTIONS
See Exhibit 13, page 13-65 (Note 9, Statutory Accounting and Dividend
Restrictions, of Notes to the Consolidated Financial Statements) for
information regarding dividend restrictions.
(D) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(In millions) 2000 1999 1998
-------- -------- --------
Interest paid $ 17 $ 13 $ 10
Non-cash financing activities:
Treasury shares issued for:
Dividends to shareholders 5 5 4
Associate stock bonus plan - 42 -
(E) ACCOUNTING CHANGES
For information concerning new accounting standards recently adopted,
see page 13-39 of Exhibit 13, Note 1, section on Accounting Changes Adopted,
of Notes to the Consolidated Financial Statements.
IV-11
<PAGE>
<TABLE>
SCHEDULE III
AFLAC INCORPORATED AND SUBSIDIARIES
<CAPTION>
Supplementary Insurance Information
Years Ended December 31,
Amorti-
Future zation of
Deferred Policy Deferred
Policy Benefits Other Net Policy Other
Acqui- & Unpaid Policy- Invest- Benefits Acquisi- Opera-
sition Policy Unearned holders' Premium ment and tion ting Premiums
(In millions) Costs Claims Premiums Funds Revenue Income Claims Costs Expenses Written
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000:
AFLAC Japan $ 2,706 $ 25,414 $ 267 $ 327 $ 6,685 $ 1,261 $ 5,649 $ 178 $ 1,354 $ 6,749
AFLAC U.S. 979 2,445 94 19 1,554 277 969 124 453 1,555
All other - - - - - 12 - - (19)(1) -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 3,685 $ 27,859 $ 361 $ 346 $ 8,239 $ 1,550 $ 6,618 $ 302 $ 1,788 $ 8,304
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
1999:
AFLAC Japan $ 2,856 $ 26,734 $ 268 $ 296 $ 5,906 $ 1,111 $ 5,040 $ 151 $ 1,179(2) $ 5,942
AFLAC U.S. 836 2,194 93 19 1,358 245 845 106 400 1,360
All other - - - - - 13 - - 141 -
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 3,692 $ 28,928 $ 361 $ 315 $ 7,264 $ 1,369 $ 5,885 $ 257 $ 1,720 $ 7,302
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
1998:
AFLAC Japan $ 2,340 $ 21,507 $ 217 $ 229 $ 4,738 $ 917 $ 4,119 $ 111 $ 924(3) $ 4,756
AFLAC U.S. 727 1,974 92 15 1,198 216 749 90 349 1,197
All other - - - - 7 5 9 - 202 8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total $ 3,067 $ 23,481 $ 309 $ 244 $ 5,943 $ 1,138 $ 4,877 $ 201 $ 1,475 $ 5,961
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
See the accompanying Auditors' Report.
(1) Includes a benefit of $101 from the termination of a retirement liability; (2) includes a charge of $64 for the
policyholder protection fund in Japan; (3) includes a charge of $111 for the policyholder protection fund in Japan.
IV-12
</TABLE>
<PAGE>
<TABLE>
SCHEDULE IV
AFLAC INCORPORATED AND SUBSIDIARIES
<CAPTION>
Reinsurance
Years Ended December 31, 2000, 1999, and 1998
(In millions)
Percentage
Ceded to Assumed of amount
Gross other from other assumed
Amount companies companies Net amount to net
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 2000:
Life insurance in force $ 51,496 $ 640 $ - $ 50,856 -
=========== =========== =========== ========== ==========
Premiums:
Health insurance $ 7,524 $ - $ - $ 7,524 -
Life insurance 717 2 - 715 -
----------- ----------- ----------- ---------- ----------
Total earned premiums $ 8,241 $ 2 $ - $ 8,239 -
=========== =========== =========== ========== ==========
Year ended December 31, 1999:
Life insurance in force $ 44,993 $ 707 $ - $ 44,286 -
=========== =========== =========== ========== ==========
Premiums:
Health insurance $ 6,639 $ - $ - $ 6,639 -
Life insurance 627 2 - 625 -
----------- ----------- ----------- ---------- ----------
Total earned premiums $ 7,266 $ 2 $ - $ 7,264 -
=========== =========== =========== ========== ==========
Year ended December 31, 1998:
Life insurance in force $ 28,182 $ 566 $ - $ 27,616 -
=========== =========== =========== ========== ==========
Premiums:
Health insurance $ 5,435 $ - $ - $ 5,435 -
Life insurance 510 2 - 508 -
----------- ----------- ----------- ---------- ----------
Total earned premiums $ 5,945 $ 2 $ - $ 5,943 -
=========== =========== =========== ========== ==========
See the accompanying Auditors' Report.
IV-13
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AFLAC Incorporated
Date MARCH 28, 2001 By /s/ PAUL S. AMOS
----------------------- ---------------------------------
(Paul S. Amos)
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ DANIEL P. AMOS Chief Executive Officer, MARCH 28, 2001
- ------------------------ President and Vice ----------------
(Daniel P. Amos) Chairman of the Board
of Directors
/s/ KRISS CLONINGER, III Executive Vice President, MARCH 28, 2001
- ------------------------ Chief Financial Officer ----------------
(Kriss Cloninger, III) and Treasurer
/s/ NORMAN P. FOSTER Executive Vice President, MARCH 28, 2001
- ------------------------ Corporate Finance ----------------
(Norman P. Foster)
IV-14
<PAGE>
/s/ J. SHELBY AMOS, II Director MARCH 28, 2001
- ----------------------------- ----------------
(J. Shelby Amos, II)
/s/ MICHAEL H. ARMACOST Director MARCH 28, 2001
- ----------------------------- ----------------
(Michael H. Armacost)
/s/ M. DELMAR EDWARDS, M.D. Director MARCH 28, 2001
- ------------------------------ ----------------
(M. Delmar Edwards, M.D.)
/s/ JOE FRANK HARRIS Director MARCH 28, 2001
- ------------------------------ ----------------
(Joe Frank Harris)
/s/ ELIZABETH J. HUDSON MARCH 28, 2001
- ------------------------------ Director ----------------
(Elizabeth J. Hudson)
/s/ KENNETH S. JANKE, SR. Director MARCH 28, 2001
- ------------------------------ ----------------
(Kenneth S. Janke, Sr.)
/s/ CHARLES B. KNAPP Director MARCH 28, 2001
- ------------------------------ ----------------
(Charles B. Knapp)
Director MARCH 28, 2001
- ------------------------------ ----------------
(Takatsugu Murai)
Director MARCH 28, 2001
- ------------------------------ ----------------
(Yoshiki Otake)
IV-15
<PAGE>
/s/ E. STEPHEN PURDOM Director MARCH 28, 2001
- ------------------------------- ----------------
(E. Stephen Purdom)
/s/ BARBARA K. RIMER Director MARCH 28, 2001
- ------------------------------- ----------------
(Barbara K. Rimer)
/s/ MARVIN R. SCHUSTER Director MARCH 28, 2001
- ------------------------------ ----------------
(Marvin R. Schuster)
/s/ HENRY C. SCHWOB Director MARCH 28, 2001
- ------------------------------ ----------------
(Henry C. Schwob)
/s/ J. KYLE SPENCER Director MARCH 28, 2001
- ------------------------------ ----------------
(J. Kyle Spencer)
/s/ GLENN VAUGHN, JR. Director MARCH 28, 2001
- ------------------------------ ----------------
(Glenn Vaughn, Jr.)
/s/ ROBERT L. WRIGHT Director MARCH 28, 2001
- ------------------------------ ----------------
(Robert L. Wright)
IV-16
<PAGE>
EXHIBITS
3.0 - Articles of Incorporation, as amended - incorporated by
reference from Form 10-Q for June 30, 2000, Commission
file number 1-7434, Accession No. 0000004977-00-000038,
Exhibit 3.0.
3.1 - Bylaws of the Company, as amended.
4.0 - There are no long-term debt instruments in which the total
amount of securities authorized exceeds 10% of the total
assets of AFLAC Incorporated and its subsidiaries on a
consolidated basis. We agree to furnish a copy
of any long-term debt instruments to the Securities
and Exchange Commission upon request.
10.0* - American Family Corporation Stock Option Plan (1985) -
incorporated by reference from Registration Statement No.
33-44720 on Form S-8 with respect to the AFLAC Incorporated
(Formerly American Family Corporation) Incentive Stock
Option Plan (1982) and Stock Option Plan (1985).
10.1* - AFLAC Incorporated Amended 1985 Stock Option Plan -
incorporated by reference from 1994 Shareholders' Proxy
Statement, Commission file number 1-7434, Accession No.
0000004977-94-000003, Exhibit A.
10.2* - AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 - incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.3* - American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1, 1989 -
incorporated by reference from 1993 Form 10-K, Commission
file number 1-7434, Accession No. 0000004977-94-000006,
Exhibit 10.2.
10.4* - AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 2001.
10.5* - AFLAC Incorporated Employment Agreement with Daniel P.
Amos, dated August 1, 1993 - incorporated by reference
from 1993 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-94-000006, Exhibit 10.4.
10.6* - American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 - incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
10.7* - AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 - incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession
No. 0000004977-94-000006, Exhibit 10.6.
10.8* - AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 - incorporated by reference from Form
10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.1.
10.9* - AFLAC Incorporated Deferred Compensation Agreement with
Paul S. Amos, dated July 15, 1997 - incorporated by
reference from 1997 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-98-000006, Exhibit 10.11.
i
<PAGE>
10.10* - AFLAC Incorporated 1997 Stock Option Plan, incorporated
by reference from the 1997 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
97-000007, Appendix B.
10.11* - AFLAC Incorporated Executive Deferred Compensation Plan,
effective January 1, 1999 - incorporated by reference
from Form S-8 Registration Statement No. 333-69333,
Accession No. 0000004977-98-00024, Exhibit 4.
10.12* - AFLAC Incorporated Amended and Restated Management
Incentive Plan, effective January 1, 1999 - incorporated
by reference from the 1999 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No. 0000004977-
99-000007, Exhibit A.
10.13* - AFLAC Incorporated Retirement Agreement with E. Stephen
Purdom, dated February 15, 2000.
12.0 - Statement regarding the computation of ratio of earnings
to fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 2000.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
* Management contract or compensatory plan or agreement.
ii
<PAGE>
EXHIBITS FILED WITH CURRENT FORM 10-K
3.1 - Bylaws of the Corporation, as amended.
10.4* - AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 2001.
10.13* - AFLAC Incorporated Retirement Agreement with E. Stephen
Purdom, dated February 15, 2000.
12.0 - Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
13.0 - Selected information from the AFLAC Incorporated Annual
Report to Shareholders for 2000.
21.0 - Subsidiaries.
23.0 - Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-44720 with respect to the
AFLAC Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-01243 with respect to the
AFLAC Incorporated Amended 1985 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 33-41552 with respect to the
AFLAC Incorporated 401(k) Retirement Plan.
- Consent of independent auditor, KPMG LLP, to Form S-3
Registration Statement No. 33-64535 with respect to the
AFL Stock Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-27883 with respect to the
AFLAC Incorporated 1997 Stock Option Plan.
- Consent of independent auditor, KPMG LLP, to Form S-8
Registration Statement No. 333-69333 with respect to the
AFLAC Incorporated Executive Deferred Compensation Plan.
- Consent of independent auditor, KPMG LLP, to Form S-4
Registration Statement No. 333-78403 with respect to the
Senior Notes.
* Management contract or compensatory plan or agreement.
iii
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>k00e3law.txt
<DESCRIPTION>AMENDED BYLAWS OF CORPORATION
<TEXT>
<PAGE>
EXHIBIT 3.1
EXH 3.1
<PAGE>
BYLAWS
OF
AMERICAN FAMILY CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be in the
State of Georgia, County of Muscogee.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Georgia as the Board
of Directors may from time to time determine and the business of the
Corporation may require or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
the Corporation shall be held at the principal office of the Corporation or
at such other place in the United States as may be determined by the Board of
Directors, on the fourth Monday in April of each calendar year (or on the
next succeeding business day if said fourth Monday in April is a legal
holiday in any year) or at such other time and date as shall be determined by
the Board of Directors, for the purpose of electing directors and transacting
such other business as may properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders
shall be held at the principal office of the Corporation or at such other
place in the United States as may be designated in the notice of said
meetings, upon call of the Chairman of the Board of Directors or the Chief
Executive Officer and shall be called by the President or the Secretary when
so directed by the Board of Directors or at the request in writing of the
holders of shares representing all of the votes entitled to be cast by the
holders of all the issued and outstanding capital stock of the Corporation
entitled to vote thereat. Any such request shall state the purpose for which
the meeting is to be called.
SECTION 3. NOTICE OF MEETINGS. Written notice of every meeting of
shareholders, stating the place, date and hour of the meeting, shall be given
personally or by mail to each shareholder of record entitled to vote at such
meeting not less than 10 nor more than 60 days before the date of the
meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with first class postage thereon prepaid
addressed to the shareholder at his address as it appears on the Corporation'
s record of stockholders. Attendance of a shareholder at a meeting of
shareholders shall constitute a waiver of objection to: (a) lack of notice or
defective notice of such meeting unless the shareholder at the beginning of
the meeting, objects to holding the meeting or transacting business at the
meeting, and (b) consideration of a particular matter at the meeting which is
not within the purpose or purposes described in the meeting notice, unless
the shareholder objects to considering the matter when it is presented.
Notice need not be given to any shareholder who signs a waiver of notice, in
person or by proxy, either before or after the meeting.
SECTION 4. QUORUM. The holders of shares representing a majority of
the votes entitled to be cast by the holders of all the issued and
outstanding stock of the Corporation entitled to vote thereat, present in
EXH 3.1-1
<PAGE>
person or represented by proxy, shall constitute a quorum for the transaction
of business at all meetings of the shareholders except as otherwise provided
by statute, by the Articles of Incorporation, or by these Bylaws. If a
quorum is not present or represented at any meeting of the shareholders, the
holders of shares representing a majority of the votes entitled to be cast by
those present in person or represented by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting.
SECTION 5. VOTING. When a quorum is present at any meeting, the vote
of the holders of stock representing a majority of the voting power, as
defined in the Articles of Incorporation, present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of law or of the Articles of
Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of the question. Each
shareholder shall at every meeting of the shareholders be entitled to vote,
as defined, in person or by proxy for each share of the capital stock having
voting power registered in his name on the books of the Corporation, but no
proxy shall be voted or acted upon after 11 months from its date, unless
otherwise provided in the proxy.
SECTION 6. CONSENT OF SHAREHOLDERS. Any action required or permitted
to be taken at any meeting of the shareholders may be taken without a meeting
if all of the shareholders entitled to vote on the action consent thereto in
writing, setting forth the action so taken, and signing and delivering such
consent to the Secretary of the Corporation. Such consent shall have the
same force and effect as a unanimous vote of shareholders.
SECTION 7. LIST OF SHAREHOLDERS. The Corporation shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving their names
and addresses and the number, class and series, if any, of the shares held by
each. The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, before every meeting of shareholders or
any adjournment thereof, a complete list of the shareholders entitled to vote
at the meeting or any adjournment thereof, arranged in alphabetical order,
with the address of and the number and class and series, if any, of shares
held by each. The list shall be produced and kept open at the time and place
of the meeting and shall be subject to inspection by any shareholder during
the whole time of the meeting for the purposes thereof. The said list may be
the Corporation's regular record of shareholders if it is arranged in
alphabetical order or contains an alphabetical index and otherwise conforms
with the requirements specified by law.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. The property, affairs and business of the
Corporation shall be managed and directed by its Board of Directors, which
may exercise all powers of the Corporation and do all lawful acts and things
EXH 3.1-2
<PAGE>
which are not by law, by the Articles of Incorporation or by these Bylaws
directed or required to be exercised or done by the shareholders.
SECTION 2. NUMBER, ELECTION AND TERM. The number of directors which shall
constitute the whole Board shall be not less than three (3) or more than
twenty-five (25). The specific number of directors within such range shall
be fixed or changed from time to time by a majority of the Board of Directors
then in office. A decrease in the number of directors shall not have the
effect of shortening the term of any incumbent director. Except as otherwise
provided in these Bylaws, shareholders shall elect directors by a vote of not
less than a plurality of the votes present in person or represented by proxy
at the meeting. Each director elected shall hold office until his successor
is elected and qualified or until his earlier resignation, removal from
office or death. Directors shall be natural persons between the ages of 21
and 75 years, inclusive, but need not be residents of the State of Georgia or
shareholders of the Corporation.
SECTION 3. RESIGNATION. Any director who shall miss three or more
regular meetings of the Board of Directors within any twelve month period,
whether or not the meetings missed are consecutive, shall be deemed to have
automatically resigned as a director, provided that the automatic resignation
may be waived by resolution adopted by a majority vote of the remaining
directors with the written consent of the resigned director, in which event
said director shall remain on the Board.
SECTION 4. VACANCIES. Vacancies, including vacancies resulting from
any increase in the number of directors, but not including vacancies
resulting from removal from office by the shareholders (except as provided in
Section 9 of this Article III), may be filled by the shareholders, by the
Board of Directors, or by the affirmative vote of a majority of the directors
remaining in office, though less than a quorum, or by a sole remaining
director, and a director so chosen shall hold office until the next annual
election and until his successor is duly elected and qualified unless sooner
displaced. If there are no directors in office, then vacancies shall be
filled through election by the shareholders.
SECTION 5. MEETINGS AND NOTICE. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Georgia. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by resolution of the Board. Special meetings of the Board may be
called by the Chairman of the Board or Chief Executive Officer or by any two
directors on one day's oral, telegraphic or written notice duly given or
served on each director personally, or three days' notice deposited, first
class postage prepaid, in the United Sates mail. Such notice shall state a
reasonable time, date and place of meeting, but the purpose need not be
stated therein. Notice need not be given to any director who signs a waiver
of notice either before or after the meeting. Attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except when the
director states, at the beginning of the meeting (or promptly upon his
arrival), any such objection or objections to holding the meeting or the
transaction of business at the meeting and does not subsequently vote for or
assent to action taken at the meeting.
SECTION 6. QUORUM. At all meetings of the Board a majority of
directors in office immediately before the meeting begins shall constitute a
quorum for the transaction of business, and the act of a majority of the
EXH 3.1-3
<PAGE>
directors present at any meeting at which there is a quorum shall be the act
of the Board, except as may be otherwise specifically provided by law, by the
Articles of Incorporation, or by these Bylaws. If a quorum shall not be
present at any meeting of the Board, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
SECTION 7. CONSENT OF DIRECTORS. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, setting forth the
action so taken, and the writing or writings are filed with the minutes of
the proceedings of the Board or committee. Such consent shall have the same
force and effect as a unanimous vote of the Board.
SECTION 8. COMMITTEES. The Board of Directors may by resolution passed
by a majority of the whole Board, designate from among its members one or
more committees, each committee to consist of one or more directors. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of such
committee. Any such committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all
of the authority of the Board of Directors in the management of the business
and affairs of the Corporation, except that it shall have no authority with
respect to (1) amending the Articles of Incorporation or these Bylaws; (2)
adopting a plan of merger or consolidation; (3) the sale, lease, exchange or
the disposition of all or substantially all the property and assets of the
Corporation; and (4) a voluntary dissolution of the Corporation or a
revocation thereof. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
Board of Directors. A majority of each committee may determine its action
and may fix the time and places of its meetings, unless otherwise provided by
the Board of Directors. Each Committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
SECTION 9. REMOVAL OF DIRECTORS. At any shareholders' meeting with
respect to which notice of such purpose has been given, any director may be
removed from office, with or without cause, by the vote of the holders of a
majority of the stock having voting power and entitled to vote for the
election of directors, and his successor may be elected at the same or any
subsequent meeting of shareholders, or by the Board as permitted by law.
SECTION 10. COMPENSATION OF DIRECTORS. Directors shall be entitled to
such reasonable compensation for their services as directors or members of
any committee of the Board as shall be fixed from time to time by resolution
adopted by the Board, and shall also be entitled to reimbursement for any
reasonable expenses incurred in attending any meeting of the Board or any
such committee.
SECTION 11. EXECUTIVE COMMITTEE. The Executive Committee will consist
of at least five directors, including the Chief Executive Officer, the Deputy
Chief Executive Officer, the Chairman of the Board of Directors, the Vice
Chairman of the Board of Directors, the President, and such number of other
directors as the Board of Directors may from time to time determine. The
Executive Committee shall have and may exercise, during the intervals between
meetings of the Board of Directors, all of the powers of the Board of
EXH 3.1-4
<PAGE>
Directors which may be lawfully delegated. Meetings of the Executive
Committee shall be held at such times and places to be determined by the
Chairman of the Executive Committee. At all meetings of the Executive
Committee, a majority of the members thereof shall constitute a quorum. The
Executive Committee may make rules for the conduct of its business and may
appoint such committees and assistants as it may deem necessary. The Chief
Executive Officer (or another member of the Executive Committee chosen by
him) shall be the Chairman of the Executive Committee. During the intervals
between meetings of the Executive Committee, the Chief Executive Officer
shall possess and may exercise such of the powers vested in the Executive
Committee as from time to time may be lawfully conferred upon him by
resolution of the Board of Directors or the Executive Committee.
ARTICLE IV
OFFICERS
SECTION 1. NAME AND NUMBER. The officers of the Corporation, who shall
be chosen by the Board of Directors are as follows: Chief Executive Officer,
Deputy Chief Executive Officer, Chairman of the Board of Directors, Vice
Chairman of the Board of Directors, President, Executive Vice President,
Secretary, Assistant Secretary, Treasurer, and Assistant Treasurer. The
Board of Directors may appoint additional specially designated vice
presidents, assistant secretaries and assistant treasurers. Any number of
offices, except the offices of President and Secretary, may be held by the
same person. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board. The Board may, in its discretion, leave any
of the above offices vacant for any length of time.
SECTION 2. COMPENSATION. The salaries of all officers set forth in
Section 1 of this Article IV shall be fixed by the Board of Directors or a
committee or officer appointed by the Board. Salary payments made to an
officer of the Corporation that shall be disallowed in whole or in part as a
deductible expense by the Corporation for Federal Income Tax purposes shall
be reimbursed by such officer to the Corporation to the full extent of the
disallowance. It shall be the duty of the Board of Directors to enforce
payments of each such amount disallowed.
SECTION 3. TERM OF OFFICE. Unless otherwise provided by resolution of
the Board of Directors, the principal officers shall serve until their
successors shall have been chosen and qualified, or until their death,
resignation or removal as provided by these Bylaws.
SECTION 4. REMOVAL. Any officer may be removed from office at any
time, with or without cause, by the Board of Directors.
SECTION 5. VACANCIES. Any vacancy in an office resulting from any
cause may be filled by the Board of Directors.
SECTION 6. POWERS AND DUTIES. Except as hereinafter provided, the
officers of the Corporation shall each have such powers and duties as
generally pertain to their respective offices, as well as such powers and
duties as from time to time may be conferred by the Board of Directors to the
extent consistent with these Bylaws.
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall keep
the Board of Directors fully informed, and shall make a statement
EXH 3.1-5
<PAGE>
of the affairs of the Corporation at the annual meeting of the
shareholders. He shall have the general superintendence and
direction of all the other officers of the Corporation and of the
agents, independent contractors and employees thereof and to see
that their respective duties are properly performed. He shall,
for and on behalf of the Corporation, exercise the voting powers
of all stock of other companies owned by the Corporation. He may
sign and execute all authorized bonds, notes, drafts, checks,
acceptances or other obligations, reinsurance contracts and other
contracts in the name of the Corporation. He shall operate and
conduct the business and affairs of the corporation according to
the orders and resolutions of the Board of Directors, and
according to his own discretion whenever and wherever such
discretion is not expressly limited by such orders and
resolutions. He shall have the power to sue and be sued, complain
and defend, in all courts, and to participate and bind the
Corporation in any judicial, administrative, arbitrative,
settlement or other action, litigation or proceeding. All
officers may be removed with or without cause at any time by the
Chief Executive Officer whenever the Chief Executive Officer, in
his absolute discretion, shall consider that the best interests
of the Corporation will be served thereby.
(b) DEPUTY CHIEF EXECUTIVE OFFICER. In the absence of the Chief
Executive Officer, or in the event of his temporary disability or
inability to act, or in the event the Chief Executive Officer
expressly so directs, the Deputy Chief Executive Officer shall
perform the duties of Chief Executive Officer, and when so acting
shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. Upon the death,
permanent disability, or resignation of the Chief Executive
Officer, the Deputy Chief Executive Officer shall become Chief
Executive Officer and shall succeed to such duties and powers
subject to such restrictions. In the event the office of Vice
Chairman shall become vacant for any reason, the Deputy Chief
Executive Officer shall, in addition to his then current duties,
become Vice Chairman and shall succeed to the duties and powers
of such office. The Deputy Chief Executive Officer shall do and
perform such other duties as may from time to time be assigned to
him by the Board of Directors or by the Chief Executive Officer.
(c) CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of
Directors shall preside at all meetings of the Directors and
shareholders and shall perform such other duties as may be
assigned by the Board of Directors.
(d) VICE CHAIRMAN OF THE BOARD OF DIRECTORS. In the absence of the
Chairman of the Board of Directors, or in the event of his
inability to act, the Vice Chairman of the Board of Directors
shall perform the duties of the Chairman of the Board of
Directors, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the Chairman of the Board
of Directors. Upon the death, permanent disability, or
resignation of the Chairman of the Board of Directors, the Vice
Chairman shall become the Chairman of the Board and shall succeed
to such duties and powers subject to such restrictions. The Vice
Chairman of the Board of Directors shall do and perform such
EXH 3.1-6
<PAGE>
other duties as may from time to time be assigned to him by the
Board of Directors or by the Chairman of the Board.
(e) PRESIDENT. The President shall keep the Board of Directors fully
informed. He may sign and execute all authorized bonds,
contracts, notes, drafts, checks, acceptances or other
obligations in the name of the Corporation, and with the
Secretary he may sign all certificates of shares in the capital
stock of the Corporation. The President shall do and perform
such other duties as may from time to time be assigned to him by
the Board of Directors or by the Chief Executive Officer.
(f) EXECUTIVE VICE-PRESIDENT. In the absence of the President or in
the event of his inability or refusal to act, the Executive Vice-
President (or in the event there be more than one Executive Vice-
President, the Executive Vice-Presidents in the order designated,
or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Executive Vice-Presidents
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
(g) SECRETARY. The Secretary shall attend all meetings of the Board
of Directors and all meetings of the Shareholders and record all
the proceedings of the meetings of the Corporation and of the
Board of Directors in a book to be kept for that purpose and
shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or Chief Executive Officer,
under whose supervision he shall be. He shall have custody of
the corporate seal of the Corporation and he, or an assistant
secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested
by his signature or by the signature of such assistant secretary.
The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the
affixing by his signature.
(h) ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the assistant secretaries in the order determined
by the Board of Directors (of if there be no such determination,
then in the order of their election), shall, in the absence of
the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
(i) TREASURER. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation
and shall deposit all monies and other valuable effects in the
name and to the credit of the Corporation in such depositories as
may be designated by the Board of Directors. He shall disburse
EXH 3.1-7
<PAGE>
the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and
shall render regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the
Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such
surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his
office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the
Corporation.
(j) ASSISTANT TREASURER. The Assistant Treasurer, or if there shall
be more than one, the assistant treasurers in the order
determined by the Board of Directors (or if there be no such
determination, then in the order of their election), shall, in
the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
(k) For purposes of this Section 6, "disability" shall mean the
significant impairment, resulting from any physical or mental
condition, of the Chief Executive Officer's ability to perform
his duties, for a period of six or more consecutive months.
SECTION 7. VOTING SECURITIES OF CORPORATION. Unless otherwise ordered
by the Board of Directors, the Chief Executive Officer shall have full power
and authority on behalf of the Corporation to attend and to act and vote at
any meetings of security holders of corporations in which the Corporation may
hold securities, and at such meetings shall possess and may exercise any and
all rights and powers incident to the ownership of such securities which the
Corporation might have possessed and exercised if it had been present. The
Board of Directors by resolution from time to time may confer like powers
upon any other person or persons.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 1. FORM OF CERTIFICATE. Every holder of fully-paid stock in
the Corporation shall be entitled to have a certificate in such form as the
Board of Directors may from time to time prescribe.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by
the Corporation and alleged to have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
EXH 3.1-8
<PAGE>
SECTION 3. TRANSFERS.
(a) Transfers of shares of the capital stock of the Corporation shall
be made only on the books of the Corporation by the registered
holder thereof, or by his duly authorized attorney, or with a
transfer clerk or transfer agent appointed as in Section 5 of
this Article provided, and on surrender of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes thereon.
(b) The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and for all
other purposes, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
(c) Shares of capital stock may be transferred by delivery of the
certificates therefore, accompanied either by an assignment in
writing on the back of the certificates or by separate written
power of attorney to sell, assign and transfer the same, signed
by the record holder thereof, or by his duly authorized attorney
in fact but no transfer shall affect the right of the Corporation
to pay any dividend upon the stock to the holder of record as the
holder in fact thereof for all purposes, and no transfer shall be
valid, except between the parties thereto, until such transfer
shall have been made upon the books of the Corporation as herein
provided.
(d) The Board may, from time to time, make such additional rules and
regulations as it may deem expedient, not inconsistent with these
Bylaws or the Articles of Incorporation, concerning the issue,
transfer, and registration of certificates for shares of the
capital stock of the Corporation.
SECTION 4. RECORD DATE. In order that the Corporation may determine
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to demand a special meeting, or
to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the proposal of any other
lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than 70 days and,. in case of a meeting of
shareholders, not less than 10 days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If no
record date is fixed by the Board for the determination of shareholders
entitled to notice of and to vote at any meeting of shareholders, the record
date shall be at the close of business on the day next receding the day on
which the notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. If no record
date is fixed for other purposes, the record date shall be at the close of
business on the day next preceding the day on which the Board of Directors
adopts the resolution relating thereto. A determination of Shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall
apply to any adjournment of the meeting unless the Board of Directors shall
EXH 3.1-9
<PAGE>
fix a new record date for the adjourned meeting, which it shall do if the
meeting is adjourned to a date more than 120 days after the date fixed for
the original meeting.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents or one or more transfer clerks and one or
more registrars, and may require all certificates of stock to bear the
signature or signatures of any of them.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the Corporation's capital stock, subject to the provisions of the
Articles of Incorporation and applicable law. Before payment of any
dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time,
in their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the directors
shall think conducive to the interest of the Corporation, and the directors
may modify or abolish any such reserve in the manner in which it was created.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 3. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words
"Corporate Seal" and "Georgia." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise. In
the event it is inconvenient to use such a seal at any time, the signature of
the Corporation followed by the word "Seal" enclosed in parentheses shall be
deemed the seal of the Corporation.
SECTION 4. ANNUAL STATEMENTS. Not later than four months after the
close of each fiscal year, and in any case prior to the next annual meeting
of stockholders, the Corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of its fiscal year,
and
(b) A profit and loss statement showing the result of its operations
during its fiscal year.
Upon written request, the Corporation promptly shall mail to any
shareholder of record a copy of the most recent such balance sheet and profit
and loss statement.
SECTION 5. BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS. All of
the requirements and provisions of Article llA, Chapter 2, Title 14 of the
Georgia Business Corporation Code of the Official Code of Georgia Annotated,
or as the same may be amended or re-codified from time to time, shall apply
to the Corporation.
EXH 3.1-10
<PAGE>
SECTION 6. SHAREHOLDERS' RIGHT TO INSPECT RECORDS. To the extent such
limitation is permitted by law, a shareholder owning two percent or less of
the outstanding shares of the Corporation shall have no right to inspect or
copy excerpts from minutes of any meeting of the Board of Directors, records
of any action of a committee of the Board of Directors while acting in place
of the Board of Directors on behalf of the Corporation, minutes of any
meeting of the shareholders, records of action taken by the shareholders or
the Board of Directors without a meeting, the accounting records of the
Corporation, and the record of shareholders.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS & OFFICERS
SECTION 1. INDEMNIFICATION. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including, but not limited
to, any action, suit or proceeding by or in the right of the Corporation),
whether civil, criminal, administrative or investigative, by reason of the
fact that he is or was a director, advisory director, officer, employee or
agent of the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise, and shall
advance expenses to such person reasonably incurred in connection therewith,
to the fullest extent permitted by the relevant provisions of the Georgia
Business Corporation Code, as such law presently exists or hereafter may be
amended.
SECTION 2. PURCHASE OF INSURANCE. The Board of Directors may authorize
the Corporation to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise against
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of
this Article VII or the Georgia Business Corporation Code.
ARTICLE VIII
ADVISORY DIRECTORS
The Board of Directors of the Corporation may at its annual meeting, or
from time to time thereafter, appoint any individual to serve as a member of
an Advisory Board of Directors of the Corporation. Any individual appointed
to serve as a member of an Advisory Board of Directors of the Corporation
shall be permitted to attend all meetings of the Board of Directors and may
participate in any discussion thereat, but such individual may not vote at
any meeting of the Board of Directors or be counted in determining a quorum
for such meeting. It shall be the duty of members of the Advisory Board of
Directors of the Corporation to advise and provide general policy advice to
the Board of Directors of the Corporation at such times and places and in
such groups and committees as may be determined from time to time by the
Board of Directors, but such individual shall not have any responsibility or
be subject to any liability imposed upon a director or in any manner
otherwise deemed a director. The compensation paid to members of the
Advisory Board of Directors shall be determined from time to time by the
Board of Directors of the Corporation. Each member of the Advisory Board of
EXH 3.1-11
<PAGE>
Directors, except in the case of his earlier death, resignation, retirement,
disqualification or removal, shall serve until the next succeeding annual
meeting of the Board of Directors and thereafter until his successor shall
have been appointed.
ARTICLE IX
EMERITUS DIRECTORS
Any director of the Corporation who is not an officer or employee of the
Corporation and who has served as a director in such capacity for five or
more years and has attained fifty-five (55) years of age shall be eligible to
be appointed as a director emeritus upon his retirement or resignation. A
director emeritus shall be entitled to serve for a term equal to said
director's length of service as a member of the Board of Directors. The
director emeritus shall have the right to attend and participate in
discussions of the business of the Corporation at regular and Special
meetings of the Board of Directors but shall not be entitled to vote on any
matter. The director emeritus shall be a goodwill ambassador on behalf of
the Corporation and shall hold himself or herself available at mutually
convenient times for consultation with members of the Board and senior
management of the Corporation concerning the business and affairs of the
Corporation.
ARTICLE X
AMENDMENTS
The Board of Directors shall have power to amend or repeal the Bylaws or
adopt new Bylaws, but any Bylaws adopted by the Board of Directors may be
altered, amended or repealed, and new Bylaws adopted, by the shareholders.
The shareholders may prescribe that any Bylaw or Bylaws adopted by them shall
not be altered, amended or repealed by the Board of Directors. Action by the
shareholders with respect to Bylaws shall be taken by an affirmative vote of
a majority of the voting power of all shares entitled to elect directors, and
action by the directors with respect to Bylaws shall be taken by an
affirmative vote of a majority of all directors then holding office.
EXH 3.1-12
<PAGE>
EXHIBIT "C"
RESOLUTION OF THE BOARD
OF DIRECTORS OF
AMERICAN FAMILY CORPORATION
RESOLVED that the following amendments to the Bylaws of American Family
Corporation are hereby adopted:
ARTICLE VII
INDEMNIFICATION OF DIRECTORS & OFFICERS
SECTION 1. INDEMNIFICATION. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (including, but not limited
to, any action, suit or proceeding by or in the right of the Corporation),
whether civil, criminal, administrative or investigative, by reason of the
fact that he is or was a director, advisory director, officer, employee or
agent of the Corporation or is or was acting at the request of the
Corporation, or who was serving as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
and shall advance expenses to such person reasonably incurred in connection
therewith, to the fullest extent permitted by the relevant provisions of the
Georgia Business Corporation Code, as such law presently exists or hereafter
may be amended.
Adopted April 4, 1990
EXH 3.1-13
<PAGE>
EXHIBIT "C"
RESOLUTION
RESOLVED, That the Board of Directors of American Corporation deems it
advisable and in the best interest of the Corporation for the name of the
Corporation to be changed to "AFLAC Incorporated"; and
RESOLVED FURTHER, That Article I of the Articles of Incorporation be,
effective January 1, 1992, amended to read in full as follows:
"I. The name of the corporation is AFLAC Incorporated"; and
RESOLVED FURTHER, That the appropriate officers of the Corporation be,
and each of them hereby is, authorized and directed to prepare, execute and
file with the Georgia Secretary of State Articles of Amendment to the
Articles of Incorporation and to take any and all other action necessary or
appropriate to effect such amendment; and
RESOLVED FURTHER, That the form of certificate for fully paid and
nonassessable shares of Common Stock of the Corporation presented to the
Board of Directors be, effective January 1, 1992, adopted as the certificate
to represent fully paid and non-assessable shares of common Stock of the
Corporation and that a specimen of such certificate be attached hereto as
EXHIBIT "A"; and
RESOLVED FURTHER, That outstanding certificates representing issued and
outstanding shares of common Stock of the Corporation shall continue to
represent shares of Common Stock of the Corporation; and
RESOLVED FURTHER, That the title of the Bylaws of the Corporation be,
effective January 1, 1992, amended to read as follows:
"Bylaws
of
AFLAC Incorporated";
and
RESOLVED FURTHER, That the proposed Corporate Seal, an impression of
which is affixed to this page in the margin opposite this resolution, be,
effective January 1, 1992, adopted as the Corporate Seal of the Corporation;
and
RESOLVED FURTHER, That there is incorporated herein by reference, as
fully as though set forth at length herein, any resolutions of the Board of
Directors that may be required by any exchange upon which securities of the
Corporation are listed, by any banks, by any transfer agents or registrars or
by any government or regulatory authorities in connection with the change in
corporate name of the Corporation if, in the opinion of the proper officers
of the Company, the adoption of such resolutions is necessary or appropriate
and that such resolutions be, and they hereby are, deemed adopted IN HAEC
VERBA with the same force and effect as though set forth herein; and
RESOLVED FURTHER, That the appropriate officers of the Corporation be,
and each of them hereby is, authorized and directed to take or cause to be
EXH 3.1-14
<PAGE>
taken all such other and further actions and to execute and deliver any and
all instruments, certificates, applications, consents and other documents and
to incur all such fees and expenses as in their judgment shall be necessary,
appropriate or advisable in order to carry out fully the purpose and intent
of the foregoing resolutions; and
RESOLVED FURTHER, That all actions heretofore taken by any officer of
the Corporation in connection with the actions contemplated by the foregoing
resolutions be, and they hereby are, approved, ratified and confirmed in all
respects.
Adopted December 10, 1991
EXH 3.1-15
<PAGE>
EXHIBIT "E"
RESOLUTION
WHEREAS, The Board of Directors has deemed it appropriate to reduce the
retirement age for Directors for the first time on or after April 27, 1992,
from 75 years of age to 70 years of age; and
WHEREAS, The Board of Directors has decided that the retirement age for
Directors first elected prior to April 27, 1992, shall remain at 75 years of
age;
NOW, THEREFORE, BE IT RESOLVED, That Article III of the Bylaws of the
Corporation be and hereby is amended by amending Section 2 thereof such that
it reads as follows:
"Section 2. Number, Election and Term. The number of Directors
which shall constitute the whole Board shall be not less than three
(3) or more than twenty-five (25). The specific number of
Directors within such range shall be fixed or changed from time to
time by a majority of the Board of Directors then in office. A
decrease in the number of Directors shall not have the effect of
shortening the term of any incumbent Director.
Except as otherwise provided in these Bylaws, shareholders shall elect
Directors by a vote of not less than a plurality of the votes present in
person or represented by proxy at the meeting. Each Director elected
shall hold office until his successor is elected and qualified or until
his earlier resignation, removal from office or death. Directors shall
be natural persons between the ages of 21 and 70 years, inclusive;
provided, however, that any Directors who were elected to the Board for
the first time before April 27, 1992, and who are subsequently
re-elected shall be natural persons between the ages of 21 and 75 years,
inclusive. Directors need not be residents of the State of Georgia or
shareholders of the Corporation."
Adopted 12/10/91
EXH 3.1-16
<PAGE>
EXHIBIT "E"
RESOLUTION
WHEREAS, management has recommended that the annual meeting of share-
holders be rescheduled to more closely coincide with the release of first
quarter earnings; and
WHEREAS, it has been suggested that the Bylaws be amended to reflect this
change in the annual meeting date, effective for the 1993 annual shareholders
meeting.
NOW THEREFORE, BE IT RESOLVED, that Article II, Section 1 of the AFLAC
Incorporated Bylaws be amended by striking said Section 1 in its entirety and
inserting the following:
"SECTION 1. Annual Meetings. The annual meeting of the shareholders of
the Corporation shall be held at the principal office of the Corporation or at
such other place in the United States as may be determined by the Board of
Directors, on the first Monday in May of each calendar year (or on the next
succeeding business day if said first Monday in May is a legal holiday in any
year) or at such other time and date as shall be determined by the Board of
Directors, for the purpose of electing directors and transacting such other
business as may properly be brought before the meeting."
Adopted November 10, 1992
EXH 3.1-17
<PAGE>
RESOLUTION
RE: AMEND BYLAWS
WHEREAS, the Board of Directors is authorized to amend and alter the
Corporation's Bylaws pursuant to Section 14-2-1020(a) of the Business
Corporation Code of the State of Georgia and Article X of the Corporation's
Bylaws; and
WHEREAS, the Board of Directors has determined that such amendment of
the Bylaws is in the best interest of the Corporation and its shareholders;
NOW, THEREFORE IT IS HEREBY:
RESOLVED, that Article II of the Corporation's Bylaws be and hereby is
amended and altered by redesignating Section 1 as Section 1(a) and adding the
following new Sections 1(b), (c), (d), (e) and (f):
"(b) No business may be transacted at an annual meeting of
shareholders, other than business that is either (i) specified in
the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized
committee thereof), (ii) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors
(or any duly authorized committee thereof) or (iii) otherwise
properly brought before the annual meeting by any shareholder of
the Corporation (A) who is a shareholder of record on the date of
the giving of the notice provided for in this Section 1 and on
the record date for the determination of shareholders entitled to
vote at such annual meeting and (B) who complies with the notice
procedures set forth in this Section 1.
"(c) In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder,
such shareholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation, which notice is
not withdrawn by such shareholder at or prior to such annual
meeting.
"(d) To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided,
however, that in the event that the annual meeting is called for
a date that is not within thirty (30) days before or after such
anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure
of the date of the annual meeting was made, whichever first
occurs.
"(e) To be in proper written form, a shareholder's notice to the
Secretary must set forth as to each matter such shareholder
proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
EXH 3.1-18
<PAGE>
the annual meeting, (ii) the name and record address of such
shareholder, (iii) the class and number of shares of capital
stock of the Corporation which are owned beneficially or of
record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any
other person or persons (including their names) in connection
with the proposal of such business by such shareholder and any
material interest of such shareholder in such business and (v) a
representation that such shareholder intends to appear in person
or by proxy at the annual meeting to bring such business before
the meeting.
"(f) No business shall be conducted at the annual meeting of
shareholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section 1,
provided, however, that, once business has been properly brought
before the annual meeting in accordance with such procedures,
nothing in this Section 1 shall be deemed to preclude discussion
by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought
before the annual meeting in accordance with the foregoing
procedures, the Chairman shall declare to the meeting that the
business was not properly brought before the meeting and such
business shall not be transacted."
FURTHER RESOLVED, that Article III of the Corporation's Bylaws be and
hereby is amended and altered by redesignating Section 2 as Section 2(a) and
adding the following new Sections 2(b), (c), (d), (e) and (f):
"(b) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the
Corporation. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of shareholders (i)
by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (ii) by any shareholder of the
Corporation (A) who is a shareholder of record on the date of the
giving of the notice provided for in this Section 2 and on the
record date for the determination of shareholders entitled to
vote at such annual meeting and (B) who complies with the notice
procedures set forth in this Section 2.
"(c) In addition to any other applicable requirements, for a
nomination to be made by a shareholder, such shareholder must
have given timely notice thereof in proper written form to the
Secretary of the Corporation.
"(d) To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the
immediately preceding annual meeting of shareholders; provided,
however, that in the event that the annual meeting is called for
a date that is not within thirty (30) days before or after such
anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the
tenth (10th) day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure
EXH 3.1-19
<PAGE>
of the date of the annual meeting was made, whichever first
occurs.
"(e) To be in proper written form, a shareholder's notice to the
Secretary must set forth (i) as to each person whom the
shareholder proposes to nominate for election as a director (A)
the name, age, business address and residence address of the
person, (B) the principal occupation or employment of the person,
(C) the number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (D)
any other information relating to the person that would be
required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder; and (ii) as
to the shareholder giving the notice (A) the name and record
address of such shareholder, (B) the number of shares of capital
stock of the Corporation which are owned beneficially or of
record by such shareholder, (C) a description of all arrangements
or understandings between such shareholder and each proposed
nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by such
shareholder, (D) a representation that such shareholder intends
to appear in person or by proxy at the meeting to nominate the
persons named in its notice and (E) any other information
relating to such shareholder that would be required to be
disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of
directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must
be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
"(f) No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures
set forth in this Section 2. If the Chairman of the annual
meeting determines that a nomination was not made in accordance
with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective
nomination shall be disregarded."
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and each of them hereby is, authorized to restate the Bylaws of the
Corporation to incorporate the amendments adopted hereby.
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and each of them hereby is, authorized, empowered and directed to attest to
the approval of the foregoing amendments, and to make such filings and
execute and deliver any agreement, document, certificate or other instrument
which such officer may deem necessary or desirable to carry out the purposes
of these resolutions, with such modification and amendments to such filings
and such certificates, agreements, instruments or other documents as they, in
their discretion, may deem necessary or desirable and in the best interest of
the Corporation, their taking any such action for and on behalf and in the
name of the Corporation, and/or their execution and delivery, for and on
behalf and in the name of the Corporation, of any such certificate,
EXH 3.1-20
<PAGE>
agreement, instrument or document, incorporating any such notification or
amendment, to be conclusive evidence of approval thereof by the Board.
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and they hereby are, authorized, empowered and directed to pay all fees and
expenses incurred in connection with carrying out the purposes of these
resolutions including, but not limited to, fees and expenses of legal
counsel, as they, or any of them, shall determined to be necessary or
appropriate, such payment to be conclusive evidence of approval thereof by
the Board, and to perform all other acts and do all other things as they, in
their discretion, may deem necessary or desirable and in the best interest of
the Corporation in connection with the foregoing resolutions.
FURTHER RESOLVED, that all acts and things heretofore done by any
appropriate officer, director or by any employee or agent of the Corporation,
on or prior to the date of these resolutions, in connection with the action
contemplated by these resolutions, be, and the same hereby are, in all
respects ratified, confirmed, approved and adopted as acts and deeds of the
Corporation.
Adopted 4/8/96
EXH 3.1-21
<PAGE>
EXHIBIT "I"
RESOLUTION
WHEREAS, the Board of Directors is authorized to amend and alter the
Corporation's Bylaws pursuant to Section 14-2-1020(a) of the Business
Corporation Code of the State of Georgia and Article X of the Corporation's
Bylaws; and
WHEREAS, the Board of Directors has determined that such amendment of
the Bylaws is in the best interest of the Corporation and its shareholders;
NOW, THEREFORE IT IS HEREBY:
RESOLVED, that Article II, Section 3 of the Corporation's Bylaws be and
hereby is amended and altered as follows:
"Notice of every meeting of shareholders, stating the place, date and
hour of the meeting, shall be given to each shareholder of record entitled to
vote at such meeting not less than 10 nor more than 60 days before the date
of the meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid addressed to
the shareholder at his address as it appears on the Corporation's record of
stockholders. Attendance of a shareholder at a meeting of shareholders shall
constitute a waiver of objection to: (a) lack of notice or defective notice
of such meeting unless the shareholder at the beginning of the meeting,
objects to holding the meeting or transacting business at the meeting, and
(b) consideration of a particular matter at the meeting which is not within
the purpose or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is presented. Notice
need not be given to any shareholder who signs a waiver of notice, in person
or by proxy, either before or after the meeting."
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and each of them hereby is, authorized to restate the Bylaws of the
Corporation to incorporate the amendments adopted hereby.
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and each of them hereby is, authorized, empowered and directed to attest to
the approval of the foregoing amendments, and to make such filings and
execute and deliver any agreement, document, certificate or other instrument
which such officer may deem necessary or desirable to carry out the purposes
of these resolutions, with such modification and amendments to such filings
and such certificates, agreements, instruments or other documents as they, in
their discretion, may deem necessary or desirable and in the best interest of
the Corporation, their taking any such action for and on behalf and in the
name of the Corporation, and/or their execution and delivery, for and on
behalf and in the name of the Corporation, of any such certificate,
agreement, instrument or document, incorporating any such notification or
amendment, to be conclusive evidence of approval thereof by the Board.
FURTHER RESOLVED, that the appropriate officers of the Corporation be,
and they hereby are, authorized, empowered and directed to pay all fees and
expenses incurred in connection with carrying out the purposes of these
resolutions including, but not limited to, fees and expenses of legal
counsel, as they, or any of them, shall determine to be necessary or
appropriate, such payment to be conclusive evidence of approval thereof by
the Board, and to perform all other acts and do all other things as they, in
EXH 3.1-22
<PAGE>
their discretion, may deem necessary or desirable and in the best interest of
the Corporation in connection with the foregoing resolutions.
FURTHER RESOLVED, that all acts and things heretofore done by any
appropriate officer, director or by any employee or agent of the Corporation,
on or prior to the date of these resolutions, in connection with the action
contemplated by these resolutions, be, and the same hereby are, in all
respects ratified, confirmed, approved and adopted as acts and deeds of the
Corporation.
Adopted February 13, 2001
EXH 3.1-23
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>3
<FILENAME>k00e10sr.txt
<DESCRIPTION>AMENDED SUP. EXEC. RETIREMENT PLAN
<TEXT>
<PAGE>
EXHIBIT 10.4
EXH 10.4
<PAGE>
AFLAC INCORPORATED
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
EXH 10.4-i
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Actuarial Equivalent . . . . . . . . . . . . . . . . . . . 2
1.2 Administrative Committee . . . . . . . . . . . . . . . . . 2
1.3 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Annual Compensation. . . . . . . . . . . . . . . . . . . . 2
1.5 Annual Retirement Benefit. . . . . . . . . . . . . . . . . 2
1.6 Average Annual Compensation. . . . . . . . . . . . . . . . 2
1.7 Benefit Commencement Date. . . . . . . . . . . . . . . . . 2
1.8 Board. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Cause. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 Change in Control. . . . . . . . . . . . . . . . . . . . . 3
1.11 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.12 Company. . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Compensation Committee . . . . . . . . . . . . . . . . . . 4
1.14 Confidential Information . . . . . . . . . . . . . . . . . 4
1.15 Contiguous Consulting Agreement. . . . . . . . . . . . . . 4
1.16 Delayed Early Retirement Date. . . . . . . . . . . . . . . 4
1.17 Disability or Disabled . . . . . . . . . . . . . . . . . . 5
1.18 Early Retirement Date. . . . . . . . . . . . . . . . . . . 5
1.19 Effective Date . . . . . . . . . . . . . . . . . . . . . . 5
1.20 Eligible Employee. . . . . . . . . . . . . . . . . . . . . 5
1.21 Employment Date. . . . . . . . . . . . . . . . . . . . . . 5
1.22 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.23 Final Base Pay . . . . . . . . . . . . . . . . . . . . . . 5
1.24 Good Reason. . . . . . . . . . . . . . . . . . . . . . . . 5
1.25 Grandfathered Participant. . . . . . . . . . . . . . . . . 6
1.26 Joint and 50% Survivor Annuity . . . . . . . . . . . . . . 6
1.27 Normal Retirement Date . . . . . . . . . . . . . . . . . . 7
1.28 Participant. . . . . . . . . . . . . . . . . . . . . . . . 7
1.29 Participation Date . . . . . . . . . . . . . . . . . . . . 7
1.30 Pension Plan . . . . . . . . . . . . . . . . . . . . . . . 7
1.31 Pension Plan Benefit . . . . . . . . . . . . . . . . . . . 7
1.32 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.33 Qualifying Termination . . . . . . . . . . . . . . . . . . 7
1.34 Single Life Annuity. . . . . . . . . . . . . . . . . . . . 7
1.35 Surviving Spouse . . . . . . . . . . . . . . . . . . . . . 8
1.36 Total Payments . . . . . . . . . . . . . . . . . . . . . . 8
1.37 Trade Secret . . . . . . . . . . . . . . . . . . . . . . . 8
1.38 Year of Employment . . . . . . . . . . . . . . . . . . . . 8
1.39 Year of Participation. . . . . . . . . . . . . . . . . . . 8
ARTICLE II ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . 8
2.1 Selection of Participants. . . . . . . . . . . . . . . . . 8
2.2 Cessation of Participation . . . . . . . . . . . . . . . . 9
2.3 Termination of Employment Before Early Retirement Date;
Removal from Participation . . . . . . . . . . . . . . . . 9
EXH 10.4-ii
<PAGE>
ARTICLE III BENEFITS. . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Eligibility for Benefits . . . . . . . . . . . . . . . . . 9
3.2 Normal Retirement Benefit. . . . . . . . . . . . . . . . . 10
3.3 Delayed Early Retirement Benefit . . . . . . . . . . . . . 10
3.4 Early Retirement Benefit . . . . . . . . . . . . . . . . . 11
3.5 Reduced Early Retirement Benefit . . . . . . . . . . . . . 11
3.6 Payment of Annual Retirement Benefit . . . . . . . . . . . 11
3.7 Change in Control. . . . . . . . . . . . . . . . . . . . . 12
3.8 Noncompetition . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Confidential Information . . . . . . . . . . . . . . . . . 14
3.10 Death Benefit. . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IV CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . 14
4.1 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V SOURCE OF FUNDS . . . . . . . . . . . . . . . . . . . . 15
5.1 Source of Funds. . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI ADMINISTRATIVE AND COMPENSATION COMMITTEES . . . . . . 15
6.1 Action of Administrative Committee . . . . . . . . . . . . 15
6.2 Rights and Duties of Administrative Committee. . . . . . . 16
6.3 Rights and Duties of Compensation Committee. . . . . . . . 16
6.4 Compensation, Indemnity and Liability. . . . . . . . . . . 16
6.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII AMENDMENT AND TERMINATION . . . . . . . . . . . . . . 17
7.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Termination of Plan. . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 17
8.1 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 No Employment Contract . . . . . . . . . . . . . . . . . . 17
8.3 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.4 Gender and Number. . . . . . . . . . . . . . . . . . . . . 18
8.5 Successors . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6 Legal Expenses . . . . . . . . . . . . . . . . . . . . . . 18
8.7 Assignment of Benefits . . . . . . . . . . . . . . . . . . 18
8.8 Legally Incompetent. . . . . . . . . . . . . . . . . . . . 18
8.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 18
EXH 10.4-iii
<PAGE>
AFLAC INCORPORATED
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
Effective as of the 1st day of January, 2001, AFLAC Incorporated, a
corporation duly organized and existing under the laws of the State of
Georgia (the "Company"), hereby amends and restates the AFLAC Incorporated
Supplemental Executive Retirement Plan (the "Plan").
BACKGROUND AND PURPOSE
A. PURPOSE. The primary purpose of the Plan is to provide
supplemental retirement income to selected executives of the Company and its
affiliated companies.
B. TYPE OF PLAN. The Plan constitutes an unfunded, nonqualified
deferred compensation plan that benefits certain designated employees who
are within a select group of key management or highly compensated employees.
STATEMENT OF AGREEMENT
To establish the Plan with the purposes and goals as hereinabove
described, the Company hereby sets forth the terms and provisions as
follows:
EXH 10.4-1
<PAGE>
ARTICLE I
DEFINITIONS
For purposes of the Plan, the following terms, when used with an
initial capital letter, shall have the meaning set forth below unless a
different meaning plainly is required by the context.
1.1 ACTUARIAL EQUIVALENT means an amount of equivalent value
determined by applying the Unisex Pension 1984 Mortality Table and a 7% rate
of interest; provided, consistent with the terms of Section 7.1, the
Administrative Committee may, in its sole discretion from time to time,
modify this rate of interest.
1.2 ADMINISTRATIVE COMMITTEE means the committee designated by the
Compensation Committee to act on behalf of the Company to administer the
Plan. If at any time the Compensation Committee has not designated an
Administrative Committee, the Compensation Committee shall serve as the
Administrative Committee. Subject to the limitation in Section 6.1 relating
to decisions which affect solely their own benefits under the Plan,
individuals who are management level employees and/or Participants may serve
as members of the Administrative Committee.
1.3 AFFILIATE means (i) any corporation or other entity that is
required to be aggregated with the Company under Code Sections 414(b), (c),
(m) or (o), and (ii) any other entity in which the Company has an ownership
interest and which the Company designates as an Affiliate for purposes of
the Plan.
1.4 ANNUAL COMPENSATION means the amount actually paid to a
Participant for services performed as an employee (but not as a consultant)
during a relevant calendar year as wages, salaries for professional
services, and cash bonuses. Annual Compensation for a relevant calendar
year shall also include compensation (i) contributed by the Company on
behalf of a Participant pursuant to a salary reduction agreement which is
not includable in the gross income of the Participant under Code Sections
125, 402(a)(8) or 402(h), or (ii) deferred by the Company on behalf of a
Participant pursuant to a salary reduction agreement under the AFLAC
Incorporated Executive Deferred Compensation Plan.
1.5 ANNUAL RETIREMENT BENEFIT means the annual amount payable to a
retired Participant as determined pursuant to the terms of Article III.
1.6 AVERAGE ANNUAL COMPENSATION means, for each Participant, the
average of his Annual Compensation for the 3-consecutive-calendar year
period in the final 10-consecutive-calendar year period of employment with
the Company and its Affiliates that yields the highest average. For
purposes hereof, the Participant's Annual Compensation for the calendar year
in which the Participant terminates employment with the Company and all of
its Affiliates shall be taken into account only if such termination occurs
as of December 31 of such year.
1.7 BENEFIT COMMENCEMENT DATE means the first day of the calendar
month coinciding with or next following the date on which a Participant
becomes entitled to receive or begin receiving an Annual Retirement Benefit
under Section 3.2, 3.3, 3.4 or 3.5.
1.8 BOARD means the Board of Directors of the Company.
EXH 10.4-2
<PAGE>
1.9 CAUSE means, in connection with a Participant's termination of
employment and/or removal from participation in the Plan (whether by action
of his employer or the Compensation Committee, or by the Participant's
resignation for other than Good Reason in anticipation of such action for
Cause to terminate his employment or participation) (i) the continued
failure by the Participant to substantially perform the Participant's duties
with the Company or an Affiliate of the Company (other than any such failure
resulting from the Participant's incapacity due to physical or mental
illness or any such actual or anticipated failure after a Participant gives
a notice of termination of employment for Good Reason) after a written
demand for substantial performance is delivered to the Participant by the
Board, which demand specifically identifies the manner in which the Board
believes that the Participant has not substantially performed the
Participant's duties; (ii) the engaging by the Participant in conduct that
is demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise; or (iii) the Participant's conviction of, or plea
of guilty or no contest to, a felony or crime involving moral turpitude.
Notwithstanding the foregoing, a termination for Cause shall not be deemed
to have occurred under clause (i) or (ii) unless and until there shall have
been delivered to the Participant a copy of a resolution duly adopted by the
affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable
notice to the Participant and an opportunity for him, together with his
counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Participant engaged in conduct set forth above and
specifying the particulars thereof in detail.
1.10 CHANGE IN CONTROL means the occurrence of any of the following
events:
(a) Any Person is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities;
provided, for purposes of this subsection (a), securities acquired directly
from the Company or its Affiliates shall not be taken into account as
securities beneficially owned by such Person;
(b) During any period of 2 consecutive years, individuals who at
the beginning of such period constitute the Board and any new director
(other than a director designated by a Person who has entered into an
agreement with the Company to effect a transaction described in subsection
(a), (c) or (d) hereof) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof;
(c) The shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i) a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the ownership of
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company, at least 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
EXH 10.4-3
<PAGE>
after such merger or consolidation; or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person acquires more than 50% of the combined
voting power of the Company's then outstanding securities; or
(d) The shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets.
As used herein, the term "Person" shall have the meaning given in
Section 3(a)(9) of the Securities Exchange Act of 1934, as modified and used
in Sections 13(d) and 14(d) thereof; provided, a Person shall not include
(i) the Company or any of its subsidiaries; (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or any of its subsidiaries; (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities; or (iv) a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the
Company.
1.11 CODE means the Internal Revenue Code of 1986, as amended.
1.12 COMPANY means AFLAC Incorporated, a Georgia corporation with its
principal place of business in Columbus, Georgia.
1.13 COMPENSATION COMMITTEE means the Compensation Committee of the
Board.
1.14 CONFIDENTIAL INFORMATION means (i) all Trade Secrets; and (ii)
any other information that is material to the Company and not generally
available to the public, including, without limitation, information
concerning the Company's methods and plans of operation, production
processes, marketing and sales strategies, research and development, know-
how, computer programming, style and design technology and plans, non-
published product specifications, patent applications, product and raw
material costs, pricing strategies, business plans, financial data,
personnel records, suppliers and customers (whether or not such information
constitutes a Trade Secret).
1.15 CONTIGUOUS CONSULTING AGREEMENT means a written consulting
agreement between the Company (and/or an Affiliate) and a Participant that
(i) commences immediately upon the Participant's termination of employment
with the Company and all Affiliates, (ii) obligates the Participant to
perform consulting services for the Company or an Affiliate for a specified
period, and (iii) is approved by the Company's Chief Executive Officer or
the Compensation Committee.
1.16 DELAYED EARLY RETIREMENT DATE means (i) for a Participant whose
Participation Date occurred before August 11, 1992, the date the Participant
attains age 60; and (ii) for a Participant whose Participation Date occurred
on or after August 11, 1992, the latest of (A) the date the Participant
attains age 60, (B) the date the Participant completes 15 Years of
Employment, or (C) the date the Participant completes 5 consecutive Years of
Participation (that is, for a Participant who has continuously been an
active Participant in the Plan since his Participation Date, the 5th
anniversary of such date).
EXH 10.4-4
<PAGE>
1.17 DISABILITY OR DISABLED means that a Participant is, in the
opinion of the Compensation Committee, wholly prevented from performing the
duties assigned to such Participant by the Company or Affiliate employing
such Participant, by reason of a medically determinable physical or mental
impairment which can be expected to result in death or to be of long-
continued and indefinite duration. In making such determination, the
Compensation Committee, in its sole discretion, may require such medical
proof as it deems necessary, including the certificate of one or more
licensed physicians selected by the Compensation Committee. The decision of
the Compensation Committee as to Disability shall be final and binding.
1.18 EARLY RETIREMENT DATE means (i) for a Participant whose
Participation Date occurred before August 11, 1992, the date the Participant
attains age 55; and (ii) for a Participant whose Participation Date occurred
on or after August 11, 1992, the latest of (A) the date the Participant
attains age 55, (B) the date the Participant completes 15 Years of
Employment, or (C) the date the Participant completes 5 consecutive Years of
Participation (that is, for a Participant who has continuously been an
active Participant in the Plan since his Participation Date, the 5th
anniversary of such date).
1.19 EFFECTIVE DATE means January 1, 2001, the date as of which this
restatement shall be effective. (The Plan was initially effective on
October 1, 1989 and previously restated effective as January 1, 1998.)
1.20 ELIGIBLE EMPLOYEE means an Employee who is a member of a select
group of highly compensated or key management employees of the Company or an
Affiliate.
1.21 EMPLOYMENT DATE means, with respect to an Eligible Employee, the
date his employment with the Company or an Affiliate first commenced
(whether or not he was an Eligible Employee on such date); provided, if an
individual ceases to be an employee of the Company and all Affiliates for
any reason and subsequently is reemployed by the Company and/or an
Affiliate, his Employment Date shall be the date his employment recommences
(unless the Compensation Committee designates an earlier date).
1.22 ERISA means the Employee Retirement Income Security Act of 1974,
as amended.
1.23 FINAL BASE PAY means the highest annual base salary (excluding
bonuses) paid to a Participant during any of the 3 calendar years
immediately preceding the calendar year in which the Participant terminates
employment with the Company and all of its Affiliates.
1.24 GOOD REASON means the occurrence after a Change in Control of any
of the following circumstances, unless the Participant expressly consents to
such circumstance in writing or, in the case of a circumstance described in
subsection (a), (e) or (f) hereof, such circumstance is fully corrected
prior to the date the Participant terminates employment:
(a) The assignment to the Participant of any duties inconsistent
with the position he held in the Company (or any subsidiary or Affiliate of
the Company) immediately prior to the Change in Control, or a significant
adverse alteration in the nature or status of his responsibilities from
those in effect immediately prior to such change;
EXH 10.4-5
<PAGE>
(b) A reduction by the Company and all Affiliates in the
Participant's annual base salary, or a reduction by the Company and all
Affiliates in the Participant's total compensation, as in effect immediately
prior to the Change in Control or as the same may be increased from time to
time;
(c) The relocation of the Company's principal executive offices
to a location outside the Columbus, Georgia Metropolitan Area (or, if
different, the metropolitan area in which such offices are located
immediately prior to the Change in Control); or the Company's requiring the
Participant to be based anywhere other than the Company's principal
executive offices except for required travel on the Company's business to an
extent substantially consistent with the Participant's business travel
obligations immediately prior to the Change in Control;
(d) The failure by the Company and all Affiliates to pay to the
Participant any portion of his current compensation within 7 days of the
date such compensation is due;
(e) The failure by the Company and all Affiliates to continue in
effect any compensation plan in which the Participant participates
immediately prior to the Change in Control and which is material to the
Participant's total compensation, unless an equitable arrangement (embodied
in an ongoing substitute or alternative plan) has been made with respect to
such plan; or the failure by the Company and all Affiliates to continue the
Participant's participation therein (or in such substitute or alternative
plan) on a basis not materially less favorable, both in terms of the amount
of benefits provided and the level of the Participant's participation
relative to other participants, as existed at the time of the Change in
Control; or
(f) The failure by the Company and all Affiliates to continue to
provide the Participant with benefits substantially similar to those enjoyed
by him under any of the Company's life insurance, medical, health and
accident, or disability plans in which he was participating at the time of
the Change in Control; the taking of any action by the Company or an
Affiliate which would directly or indirectly materially reduce any of such
benefits or deprive the Participant of any material fringe benefit enjoyed
by him at the time of the Change in Control; or the failure by the Company
and all Affiliates to provide the Participant with the number of paid
vacation days to which he is entitled on the basis of years of service with
the Company and all Affiliates in accordance with the Company's or
Affiliate's normal vacation policy in effect at the time of the Change in
Control.
A Participant's right to terminate his employment for Good Reason shall
not be affected by the Participant's incapacity due to physical or mental
illness. The Participant's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
1.25 GRANDFATHERED PARTICIPANT means a Participant who was an active
Participant in the Plan on December 31, 1997.
1.26 JOINT AND 50% SURVIVOR ANNUITY means the Actuarial Equivalent of
a Participant's Annual Retirement Benefit payable monthly during the
Participant's lifetime (commencing as of his Benefit Commencement Date and
EXH 10.4-6
<PAGE>
ending with the payment due as of the first day of the month during which
the Participant dies), with 50% of such monthly benefit amount continuing
after his death (beginning as of the first day of the month following the
month in which he dies) to his Surviving Spouse (if the Surviving Spouse
survives the Participant) for such Surviving Spouse's remaining lifetime.
Payments shall cease after the payment due on the first day of the month
coinciding with or immediately preceding the later of the Participant's
death or his Surviving Spouse's death.
1.27 NORMAL RETIREMENT DATE means (i) for a Participant whose
Participation Date occurred before August 11, 1992, the date the Participant
attains age 65; and (ii) for a Participant whose Participation Date occurred
on or after August 11, 1992, the latest of (A) the date the Participant
attains age 65, (B) the date the Participant completes 15 Years of
Employment, or (C) the date the Participant completes 5 consecutive Years of
Participation (that is, for a Participant who has continuously been an
active Participant in the Plan since his Participation Date, the 5th
anniversary of such date).
1.28 PARTICIPANT means an active Participant or retired Participant
who has a benefit payable under the Plan.
1.29 PARTICIPATION DATE means, with respect to each Eligible Employee
who is designated as a Participant, the date his participation in the Plan
commences (see Section 2.1); provided, if an Eligible Employee ceases to be
an active Participant for any reason and subsequently is again designated as
a Participant, his Participation Date shall be the date his active
participation recommences (unless the Compensation Committee designates an
earlier date).
1.30 PENSION PLAN means the AFLAC Incorporated Pension Plan, a defined
benefit plan qualified under Code Section 401(a), as such plan may be
amended from time to time.
1.31 PENSION PLAN BENEFIT means the Actuarial Equivalent of a
Participant's accrued benefit under the Pension Plan, calculated as if that
benefit was payable annually for the life of the Participant commencing on
the Participant's Benefit Commencement Date.
1.32 PLAN means the AFLAC Incorporated Supplemental Executive
Retirement Plan, as contained herein and all amendments hereto. The Plan is
intended to be an unfunded, nonqualified deferred compensation plan covering
certain designated employees who are within a select group of key management
or highly compensated employees.
1.33 QUALIFYING TERMINATION means a Participant's termination of
employment with the Company and all Affiliates following a Change in
Control, unless such termination of employment is (i) because of the
Participant's death or Disability, (ii) by the Company or an Affiliate for
Cause, or (iii) by the Participant other than for Good Reason.
1.34 SINGLE LIFE ANNUITY means the Actuarial Equivalent of a
Participant's Annual Retirement Benefit payable monthly during the
Participant's lifetime, commencing as of his Benefit Commencement Date and
ending after the payment due on the first day of the month coinciding with
or immediately preceding the date of his death.
EXH 1-.4-7
<PAGE>
1.35 SURVIVING SPOUSE means, with respect to a Participant, the person
who is treated as married to such Participant under the laws of the state in
which the Participant resides. The determination of a Participant's
Surviving Spouse shall be made as of the date of such Participant's
termination of employment.
1.36 TOTAL PAYMENTS has the meaning as defined in Section 3.7(e).
1.37 TRADE SECRET means information of or about the Company that would
be considered a trade secret under Georgia law; namely, that information
which (i) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable through proper means
by, other persons who can obtain economic value from its disclosure or use;
and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. Trade Secrets may include, but shall
not be limited to, technical or nontechnical data, a formula, pattern,
compilation, program, device, method, technique, drawing or process,
financial data or plans, product plans, or a list of actual or potential
customers or suppliers.
1.38 YEAR OF EMPLOYMENT means, with respect to an Eligible Employee, a
12-month period, beginning on his Employment Date or on any anniversary
thereof, during which such Eligible Employee either (i) remains continuously
employed by, or engaged to provide full-time service to, the Company and/or
an Affiliate, or (ii) is subject to the terms of a Contiguous Consulting
Agreement. If an individual ceases to be an employee or consultant of the
Company and all Affiliates for any reason and subsequently is reemployed or
reengaged by the Company and/or an Affiliate, his previously earned Years of
Employment shall be taken into account only to the extent (if any) specified
by the Compensation Committee.
1.39 YEAR OF PARTICIPATION means, with respect to a Participant, a 12-
month period, beginning on his Participation Date or on any anniversary
thereof, during which such Participant continues to actively participate in,
and to thereby accrue benefits under, the Plan. If an individual ceases to
be a Participant for any reason and subsequently is readmitted to
participation in the Plan, his previously earned Years of Participation
shall be taken into account only to the extent (if any) specified by the
Compensation Committee.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 SELECTION OF PARTICIPANTS.
The Compensation Committee, in its sole discretion, shall
designate which Eligible Employees shall become Participants in the Plan
and, for each such Eligible Employee, his Participation Date. The
Administrative Committee then shall set forth the name of each Participant
on Schedule A hereto. Notwithstanding anything herein to the contrary, all
aspects of the selection of Participants shall be in the sole discretion of
the Compensation Committee and regardless of title, duties or any other
factors, there shall be no requirement whatsoever that any individual or
group of individuals be allowed to participate herein.
EXH 10.4-8
<PAGE>
2.2 CESSATION OF PARTICIPATION.
Unless the Compensation Committee specifies otherwise, a
Participant's active participation in the Plan shall cease at the time his
employment with the Company and all Affiliates terminates for any reason
(whether or not he enters into a Contiguous Consulting Agreement), such that
he shall not accrue any additional benefit under the Plan. In addition,
subject to Section 3.7(b), the Compensation Committee, in its sole
discretion, may remove any Participant from participation in the Plan due to
Cause. Any such removal shall be effective as of the later of (i) the date
that the Compensation Committee has taken such action, or (ii) the effective
date that the Compensation Committee specifies for such action. A
Participant who remains entitled to benefits under the Plan after he
terminates employment with the Company and its Affiliates shall remain a
retired Participant as long as he is entitled to any portion of his benefits
as described in the Plan. During the period a former employee, who
completed at least 5 Years of Participation while an Eligible Employee, is
subject to the terms of a Contiguous Consulting Agreement, he shall remain
an active Participant potentially eligible pursuant to the terms of Section
3.5; provided, during such period, he shall not accrue any additional
benefit under the Plan nor shall he earn any credits towards a Year of
Participation.
2.3 TERMINATION OF EMPLOYMENT BEFORE EARLY RETIREMENT DATE; REMOVAL
FROM PARTICIPATION.
(a) TERMINATION BEFORE EARLY RETIREMENT DATE. Except as provided
in Section 3.5 or 3.7, upon a Participant's termination of employment with
the Company and all Affiliates before his Early Retirement Date, neither the
Participant nor his Surviving Spouse (if any) shall be entitled to any
benefit or payment under the Plan.
(b) REMOVAL FROM PARTICIPATION. Notwithstanding anything herein
to the contrary, if the Compensation Committee determines, in its sole
discretion, that either (i) a Participant's employment or participation in
the Plan was terminated by the Company, an Affiliate or the Compensation
Committee for Cause, or (ii) the Participant resigned for other than Good
Reason in anticipation of such action for Cause to terminate his employment
or participation, then the Participant and/or his Surviving Spouse shall
forfeit all rights and entitlements under the Plan. The decision of the
Compensation Committee as to whether the Participant's discharge or removal
was for Cause will be final and binding; provided, no dispute over the
reason for such discharge shall affect the finality of the discharge of the
Participant by the Company or Affiliate.
ARTICLE III
BENEFITS
3.1 ELIGIBILITY FOR BENEFITS.
Subject to the terms of Section 2.3, a Participant or Surviving
Spouse shall be eligible to receive the amount, if any, determined in
accordance with the terms of this Article.
EXH 10.4-9
<PAGE>
3.2 NORMAL RETIREMENT BENEFIT.
(a) GENERAL FORMULA. Upon a Participant's termination of
employment with the Company and all Affiliates on or after his Normal
Retirement Date for any reason other than Cause or death, the Participant
shall be entitled to an Annual Retirement Benefit in an amount equal to the
difference between the amount determined under subsection (a)(i) and the
amount determined under subsection (a)(ii), as follows:
(i) 60% of the Participant's Average Annual Compensation;
and
(ii) the Participant's Pension Plan Benefit.
(b) GRANDFATHERED BENEFITS. Notwithstanding the terms of
subsection (a) hereof, the Annual Retirement Benefit of any Grandfathered
Participant who terminates employment on or after his Normal Retirement Date
for any reason other than Cause or death shall be the greater of the amount
determined under subsection (a) hereof or an amount equal to the difference
between the amount determined under subsection (b)(i) and the amount
determined under subsection (b)(ii), as follows:
(i) 65% of the Participant's Final Base Pay; and
(ii) the Participant's Pension Plan Benefit.
3.3 DELAYED EARLY RETIREMENT BENEFIT.
(a) GENERAL FORMULA. Upon a Participant's termination of
employment with the Company and all Affiliates on or after his Delayed Early
Retirement Date but before his Normal Retirement Date for any reason other
than Cause or death, the Participant shall be entitled to an Annual
Retirement Benefit in an amount equal to the difference between the amount
determined under subsection (a)(i) and the amount determined under
subsection (a)(ii), as follows:
(i) 50% of the Participant's Average Annual Compensation;
and
(ii) the Participant's Pension Plan Benefit.
(b) GRANDFATHERED BENEFITS. Notwithstanding the terms of
subsection (a), the Annual Retirement Benefit of any Grandfathered
Participant who terminates employment on or after his Delayed Early
Retirement Date but before his Normal Retirement Date for any reason other
than Cause or death shall be the greater of the amount determined under
subsection (a) hereof or an amount equal to the difference between the
amount determined under subsection (b)(i) and the amount determined under
subsection (b)(ii), as follows:
(i) 50% of the Participant's Final Base Pay; and
(ii) the Participant's Pension Plan Benefit.
EXH 10.4-10
<PAGE>
3.4 EARLY RETIREMENT BENEFIT.
(a) GENERAL FORMULA. Upon a Participant's termination of
employment with the Company and all Affiliates on or after his Early
Retirement Date but before his Delayed Early Retirement Date for any reason
other than Cause or death, the Participant shall be entitled to an Annual
Retirement Benefit in an amount equal to the difference between the amount
determined under subsection (a)(i) and the amount determined under
subsection (a)(ii), as follows:
(i) 40% of the Participant's Average Annual Compensation;
and
(ii) the Participant's Pension Plan Benefit.
(b) GRANDFATHERED BENEFITS. Notwithstanding the terms of
subsection (a), the Annual Retirement Benefit of any Grandfathered
Participant who terminates employment on or after his Early Retirement Date
but before his Delayed Early Retirement Date for any reason other than Cause
or death shall be the greater of the amount determined under subsection (a)
hereof or an amount equal to the difference between the amount determined
under subsection (b)(i) and the amount determined under subsection (b)(ii),
as follows:
(i) 50% of the Participant's Final Base Pay; and
(ii) the Participant's Pension Plan Benefit.
3.5 REDUCED EARLY RETIREMENT BENEFIT.
Upon a Participant's attainment of his Early Retirement Date after
his termination of employment but while he is subject to the terms of a
Contiguous Consulting Agreement, the Participant shall be entitled to an
Annual Retirement Benefit that is the product of (i) the Annual Retirement
Benefit to which the Participant would have been entitled had he remained
actively employed by the Company or an Affiliate as a Participant until his
Early Retirement Date, and (ii) a fraction, (A) the numerator of which is
the number of complete and partial 12-month periods of employment with the
Company and its Affiliates completed by the Participant as of the date of
his termination of employment, and (B) the denominator of which is the
number of complete and partial 12-month periods between the Participant's
first day of employment with the Company and its Affiliates and the
Participant's Early Retirement Date.
3.6 PAYMENT OF ANNUAL RETIREMENT BENEFIT.
(a) COMMENCEMENT. A Participant's Annual Retirement Benefit
shall commence as soon as practicable after the Participant's Benefit
Commencement Date.
(b) NORMAL FORM OF PAYMENT. Except as provided in subsection (c)
hereof, a Participant's Annual Retirement Benefit shall be paid in the form
of a Single Life Annuity, commencing on the Participant's Benefit
Commencement Date.
(c) OPTIONAL FORM OF PAYMENT. A Participant may elect, not later
than 6 months before his termination of employment with the Company and all
EXH 10.4-11
<PAGE>
Affiliates, to have his Annual Retirement Benefit paid in the form of a
Joint and 50% Survivor Annuity, which shall be the Actuarial Equivalent of
the Participant's Annual Retirement Benefit payable in the form of a Single
Life Annuity. Notwithstanding any such election, if a Participant who has
elected a Joint and 50% Survivor Annuity is not married on the date of his
termination of employment, his benefit shall be paid in the form of a Single
Life Annuity.
(d) CASH PAYMENTS. All benefit payments hereunder shall be made
in cash.
3.7 CHANGE IN CONTROL.
(a) GENERAL. In the event of a Change in Control, the provisions
of this Section shall apply to each Participant who was an active
Participant in the Plan immediately preceding the date of the Change in
Control.
(b) RESTRICTION ON CHANGES. For a period of 3 years following a
Change in Control, (i) no Participant may be removed from participation in
the Plan pursuant to the terms of Section 2.2, and (ii) the Plan may not be
terminated or amended in any manner which would adversely affect in any way
the amount of, or the entitlement to, retirement benefits hereunder or
remove a Participant from participation hereunder. Notwithstanding any
other provisions of the Plan, the foregoing provisions of this subsection
may not be amended following a Change in Control without the written consent
of a majority in both number and interest of the Participants who are
actively employed by the Company or any Affiliate, both immediately prior to
the Change in Control and at the date of such amendment.
(c) TERMINATION WITHIN TWO YEARS OF A CHANGE IN CONTROL. If a
Participant's employment with the Company and all Affiliates terminates
during the 2-year period immediately following the Change in Control and
such termination of employment constitutes a Qualifying Termination, the
Company shall pay to the Participant, no later than the fifth day following
the date of the Participant's Qualifying Termination, a lump-sum cash amount
that is the Actuarial Equivalent (determined as of the date of the
Qualifying Termination) of the Annual Retirement Benefit to which the
Participant would have been entitled had he remained in the employ of the
Company or an Affiliate as a Participant in the Plan (i) until he attained
his Early Retirement Date, in the case of a Participant who had not yet
attained his Early Retirement Date as of the date of his Qualifying
Termination, (ii) until he had attained his Delayed Early Retirement Date,
in the case of a Participant who had attained his Early Retirement Date but
not his Delayed Early Retirement Date as of the date of the Qualifying
Termination, or (iii) until he had attained his Normal Retirement Date, for
a participant who had attained his Delayed Early Retirement Date but not his
Normal Retirement Date as of the date of the Qualifying Termination.
(d) TERMINATION OR REMOVAL MORE THAN TWO YEARS AFTER A CHANGE IN
CONTROL. If after the 2-year period immediately following a Change in
Control and before a Participant's Early Retirement Date (i) the
Participant's employment with the Company and all Affiliates terminates and
such termination constitutes a Qualifying Termination, or (ii) the
Participant is removed from participation in the Plan (pursuant to the terms
of Section 2.2 but subject to the terms of subsection (b) hereof), the
Company shall pay to the Participant, no later than the fifth day following
EXH 10.4-12
<PAGE>
the date of the Participant's Qualifying Termination or removal from the
Plan, a lump-sum cash amount that is the Actuarial Equivalent (determined as
of the date of the Qualifying Termination or removal) of the product of (i)
the Annual Retirement Benefit to which the Participant would have been
entitled had he remained in the employ of the Company or an Affiliate as a
Participant in the Plan until his Early Retirement Date, and (ii) a
fraction, (A) the numerator of which is the number of complete and partial
12-month periods of employment with the Company and its Affiliates completed
by the Participant as of the date of the Qualifying Termination or removal
from participation, and (B) the denominator of which is the number of
complete and partial 12-month periods between the Participant's first day of
employment with the Company and its Affiliates and the Participant's Early
Retirement Date.
(e) LIMITATIONS ON PAYMENTS. Notwithstanding any other
provisions of the Plan, in the event that any payment or benefit received or
to be received by a Participant in connection with a Change in Control or
the termination of the Participant's employment, whether pursuant to the
terms of the Plan or any other plan, arrangement or agreement with the
Company or entity whose actions result in a Change in Control or any
affiliate of the Company or such entity (all such payments and benefits,
including the payments under this Section 3.7, being hereinafter called
"Total Payments") would not be deductible (in whole or part) by the Company,
an affiliate or entity making such payment or providing such benefit, as a
result of Code Section 280G, then, to the extent necessary to make such
portion of the Total Payments deductible (and after taking into account any
reduction in the Total Payments made on account of Code Section 280G in such
other plan, arrangement or agreement), the payment described in this Section
shall be reduced (if necessary, to zero). For purposes of this limitation
(i) no portion of the Total Payments shall be taken into account which in
the opinion of tax counsel selected by the Company's independent auditors
and reasonably acceptable to the Participant does not constitute a
"parachute payment" within the meaning of Code Section 280G(b)(2), including
by reason of Code Section 280G(b)(4)(A); (ii) the payment under this Section
shall be reduced only to the extent necessary so that the Total Payments are
not subject to disallowance as deductions, in the opinion of the tax counsel
referred to in clause (i); and (iii) the value of any non-cash benefit or
any deferred payment or benefit included in the Total Payments shall be
determined by the Company's independent auditors in accordance with the
principles of Code Sections 280G(d)(3) and (4).
3.8 NONCOMPETITION.
The payment of Annual Retirement Benefits to a Participant under
the Plan shall immediately cease and be forfeited if the Participant,
without the prior consent of the Board, directly or indirectly renders
advisory or any other services to, or becomes employed by, or participates
or engages in any business competitive with any of the business activities
of the Company (or any subsidiary or Affiliate of the Company) in any states
or foreign countries in which the Company or any of its subsidiaries or
Affiliates do business. For purposes of this Section, "participates or
engages" in means acting as an agent, consultant, representative, officer,
director, member, independent contractor or employee; or as an owner,
partner, limited partner, joint venturer, creditor or shareholder (except as
a shareholder holding no more than a 1% interest in a publicly traded
entity). As a condition to receiving or continuing to receive benefit
payments hereunder, the Compensation Committee, in its sole discretion and
EXH 10.4-13
<PAGE>
at any time, may require any Participant to enter into a noncompete and/or
nonsolicitation agreement with such terms and provisions as the Compensation
Committee may dictate.
3.9 CONFIDENTIAL INFORMATION.
The payment of an Annual Retirement Benefit to a Participant under
the Plan shall immediately cease and be forfeited if the Participant, at any
time during or following the Participant's employment with the Company or
its Affiliates, discloses any Confidential Information to any other person
or entity (except employees of the Company and its Affiliates) without the
prior written consent of the Board or Compensation Committee.
3.10 DEATH BENEFIT.
In the event a Participant dies after attaining his Early
Retirement Date but before his Benefit Commencement Date, his Surviving
Spouse (if any) shall be entitled to receive, commencing as of the first day
of the month coinciding with or immediately following the date of the
Participant's death, an annual survivor benefit in an amount determined as
if the Participant had retired on the day immediately preceding his death
and had elected to receive a Joint and 50% Survivor Annuity.
ARTICLE IV
CLAIMS
4.1 CLAIMS.
(a) INITIAL CLAIM. Claims for benefits under the Plan may be
filed in writing with the Compensation Committee. The Compensation
Committee shall furnish to the claimant written notice of the disposition of
a claim within 90 days after the application therefor is filed; provided, if
special circumstances require an extension, the Compensation Committee may
extend such 90-day period by up to an additional 90 days, by providing a
notice of such extension to the claimant before the end of the initial 90-
day period. In the event the claim is denied, the notice of the disposition
of the claim shall provide the specific reasons for the denial, citations of
the pertinent provisions of the Plan, and, where appropriate, an explanation
as to how the claimant can perfect the claim and/or submit the claim for
review.
(b) APPEAL. Any Participant or Surviving Spouse who has been
denied a benefit shall be entitled, upon request to the Compensation
Committee, to appeal the denial of his claim. The claimant (or his duly
authorized representative) may review pertinent documents related to the
Plan and in the Compensation Committee's possession in order to prepare the
appeal. The request for review, together with a written statement of the
claimant's position, must be filed with the Compensation Committee no later
than 60 days after receipt of the written notification of denial of a claim
provided for in subsection (a). The Compensation Committee's decision shall
be made within 60 days following the filing of the request for review;
provided, if special circumstances require an extension, the Compensation
Committee may extend such 60-day period by up to an additional 60 days, by
providing a notice of such extension to the claimant before the end of the
EXH 10.4-14
<PAGE>
initial 60-day period. If unfavorable, the notice of decision shall explain
the reasons for denial and indicate the provisions of the Plan or other
documents used to arrive at the decision.
(c) SATISFACTION OF CLAIMS. Any payment to a Participant or
Surviving Spouse shall to the extent thereof be in full satisfaction of all
claims hereunder against the Compensation Committee, the Company, and all
Affiliates, any of which may require such Participant or Surviving Spouse as
a condition to such payment to execute a receipt and release therefor in
such form as shall be determined by the Compensation Committee. If receipt
and release is required but the Participant or Surviving Spouse (as
applicable) does not provide such receipt and release in a timely enough
manner to permit a timely distribution in accordance with the general timing
of distribution provisions in the Plan, the payment of any affected
distribution(s) may be delayed until the Compensation Committee receives a
proper receipt and release.
ARTICLE V
SOURCE OF FUNDS
5.1 SOURCE OF FUNDS.
(a) ALLOCATION AMONG AFFILIATES. The obligation to pay benefits
hereunder shall be the obligation of the Company and its Affiliates that
participate in the Plan and whose employees are Participants entitled to
benefits hereunder. The Compensation Committee shall allocate the total
liability to pay benefits under the Plan among the Company and its
Affiliates that participate in the Plan in such manner and amount as the
Compensation Committee in its sole discretion deems appropriate.
(b) GENERAL CREDITORS. Each of the Company and its Affiliates
shall provide the benefits described in the Plan and allocable to such
entity pursuant to the terms of subsection (a) hereof from its general
assets. The Company's and Affiliates' obligations to pay benefits under the
Plan constitute mere promises of the Company and its Affiliates to pay such
benefits; and a Participant or Surviving Spouse shall be and remain no more
than an unsecured, general creditor of the Company.
ARTICLE VI
ADMINISTRATIVE AND COMPENSATION COMMITTEES
6.1 ACTION OF ADMINISTRATIVE COMMITTEE.
Action of the Administrative Committee may be taken with or
without a meeting of committee members; provided, action shall be taken only
upon the vote or other affirmative expression of a majority of the committee
members qualified to vote with respect to such action. If a member of the
committee is a Participant or Surviving Spouse, he shall not participate in
any decision which solely affects his own benefit under the Plan. For
purposes of administering the Plan, the Administrative Committee shall
choose a secretary who shall keep minutes of the committee's proceedings and
all records and documents pertaining to the administration of the Plan. The
secretary may execute any certificate or any other written direction on
behalf of the Administrative Committee.
EXH 10.4-15
<PAGE>
6.2 RIGHTS AND DUTIES OF ADMINISTRATIVE COMMITTEE.
The Administrative Committee shall administer the Plan and shall
have all powers necessary to accomplish that purpose, including (but not
limited to) the following:
(a) To maintain all the necessary records of the administration
of the Plan;
(b) To maintain records regarding Participants' and Surviving
Spouses' benefits hereunder;
(c) To effect all disbursements approved by the Compensation
Committee pursuant to the Plan;
(d) To delegate to other individuals or entities from time to
time the performance of any of its duties or responsibilities hereunder; and
(e) To hire agents, accountants, actuaries, consultants and legal
counsel to assist in operating and administering the Plan.
6.3 RIGHTS AND DUTIES OF COMPENSATION COMMITTEE.
The Compensation Committee shall have the exclusive right to
construe and to interpret the Plan, to decide all questions of eligibility
for benefits and to determine the amount of such benefits, and its decisions
on such matters shall be final and conclusive on all parties. The
Compensation Committee may establish rules for the regulation of the Plan as
are not inconsistent with the terms hereof.
6.4 COMPENSATION, INDEMNITY AND LIABILITY.
The Compensation Committee, the Administrative Committee and their
members shall serve as such without bond and without compensation for
services hereunder. All expenses of the Compensation Committee and the
Administrative Committee shall be paid by the Company. No member of either
committee shall be liable for any act or omission of any other member of the
committee, nor for any act or omission on his own part, excepting his own
willful misconduct. The Company shall indemnify and hold harmless the
Compensation Committee, the Administrative Committee and each member thereof
against any and all expenses and liabilities, including reasonable legal
fees and expenses, arising out of his membership on the committee, excepting
only expenses and liabilities arising out of his own willful misconduct.
6.5 TAXES.
If the whole or any part of any Participant's or Surviving
Spouse's benefit hereunder shall become subject to any estate, inheritance,
income or other tax which the Company or an Affiliate shall be required to
pay or withhold, the Company and such Affiliate shall have the full power
and authority to withhold and pay such tax out of any monies or other
property in its hand for the account of the Participant or Surviving Spouse
whose interests hereunder are so affected. Prior to making any payment, the
Company and Affiliates may require such releases or other documents from any
lawful taxing authority as they shall deem necessary.
EXH 10.4-16
<PAGE>
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 AMENDMENTS.
Subject to Section 3.7(b), the Board or the Compensation Committee
may amend the Plan in whole or in part at any time and from time to time.
An amendment to the Plan may modify its terms in any respect whatsoever;
provided, the Board may not amend the Plan to decrease the level of benefits
which a Participant or Surviving Spouse would be entitled to receive under
Article III, if he terminated employment with the Company and all Affiliates
on the later of (i) the date such amendment is adopted, or (ii) the date
such amendment is effective.
7.2 TERMINATION OF PLAN.
Subject to Section 3.7(b), the Board shall have the right to
discontinue and terminate the Plan at any time, for any reason; provided,
such discontinuance or termination shall not have the effect of decreasing
the level of benefits which a Participant would be entitled to receive under
Article III, if he terminated employment with the Company and all Affiliates
on the later of (i) the date the resolution to terminate and discontinue the
Plan is adopted, or (ii) the date the termination and discontinuance is
effective. Termination and discontinuance of the Plan shall be binding on
all Participants and Surviving Spouses.
ARTICLE VIII
MISCELLANEOUS
8.1 TAXATION.
It is the intention of the Company and Affiliates that the
benefits payable hereunder shall not be deductible by the Company or
Affiliates nor taxable for federal income tax purposes to Participants or
Surviving Spouses until such benefits are paid by the Company or Affiliates
to such Participants or Surviving Spouses. When such benefits are so paid,
it is the intention of the Company and Affiliates that they shall be
deductible by the Company and Affiliates under Code Section 162.
8.2 NO EMPLOYMENT CONTRACT.
Nothing herein contained is intended to be nor shall be construed
as constituting a contract arrangement between the Company or any Affiliate
and any Participant to the effect that the Participant will be employed or
engaged as a consultant by the Company or any Affiliate for any specific
period of time.
8.3 HEADINGS.
The headings of the various articles and sections in the Plan are
solely for convenience and shall not be relied upon in construing any
provisions hereof. Any reference to a section shall refer to a section of
the Plan unless specified otherwise.
EXH 10.4-17
<PAGE>
8.4 GENDER AND NUMBER.
Use of any gender in the Plan will be deemed to include all
genders when appropriate, and use of the singular number will be deemed to
include the plural when appropriate, and vice versa in each instance.
8.5 SUCCESSORS.
The Company and the Affiliates shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company and/or the Affiliates to expressly assume their obligations
hereunder in the same manner and to the same extent that the Company and the
Affiliates would be required to perform if no such succession had taken
place.
8.6 LEGAL EXPENSES.
The Company shall pay or reimburse a Participant for all fees and
disbursements of counsel, if any, incurred by the Participant in seeking to
obtain or enforce any right or benefit provided by the Plan.
8.7 ASSIGNMENT OF BENEFITS.
The right of a Participant or any other person to receive payments
under the Plan shall not be assigned, transferred, pledged or encumbered,
except by will or by the laws of descent and distribution and then only to
the extent permitted under the terms of the Plan.
8.8 LEGALLY INCOMPETENT.
The Administrative Committee, in its sole discretion, may direct
that payment be made to an incompetent or disabled person, whether because
of minority or mental or physical disability, to the guardian of such person
or to the person having custody of such person, without further liability
either on the part of the Company or the Affiliates for the amount of such
payment to the person on whose account such payment is made.
8.9 GOVERNING LAW.
The Plan shall be construed, administered and governed in all
respects in accordance with applicable federal law and, to the extent not
preempted by federal law, in accordance with the laws of the State of
Georgia. If any provisions of this instrument shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officer as of the day and year first above written.
AFLAC INCORPORATED
By: /s/ Joey M. Loudermilk
----------------------------------
Title: Corporate Secretary
----------------------------------
EXH 10.4-18
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>4
<FILENAME>k00e10pd.txt
<DESCRIPTION>RETIREMENT AGREEMENT, MR. PURDOM
<TEXT>
<PAGE>
EXHIBIT 10.13
EXH 10.13
<PAGE>
RETIREMENT AGREEMENT
FOR AND IN CONSIDERATION of the mutual promises and covenants stated
herein, E. Stephen Purdom (hereinafter referred to as "Purdom") and American
Family Life Assurance Company of Columbus, a Georgia corporation
(hereinafter referred to as "AFLAC"), do hereby enter into this Retirement
Agreement (this "Agreement") on the 16th day of February, 2000.
1. RETIREMENT PAYMENTS.
(a) Cash Benefits. The parties agree that Purdom desires to retire
from his employment with AFLAC, and his last day of active employment will
be June 30, 2000. In consideration of the promises contained herein, and
other good and valuable consideration, the sufficiency of which is hereby
acknowledged, AFLAC agrees to pay Purdom the following:
(i) A benefit amount of $23,713, payable each month for the
period commencing on July 1, 2000 and ending with the
payment due on May 1, 2012 or, if earlier, the first day
of the month during which Purdom dies; and
(ii) If Purdom survives until June 1, 2012, a benefit amount of
$22,099, payable each month for the period commencing on
June 1, 2012 and ending with the payment due on the first
day of the month during which Purdom dies; and
(iii) One-half of the bonus amount Purdom would have received
under the AFLAC 2000 Management Incentive Plan if (A) he had
remained employed through December 31, 2000, and (B) his
bonus was calculated under the terms of said plan using the
same formula as will be used for active participants. Such
bonus amount will be paid in 2001 at the same time as
payment is made to active participants.
(b) Exclusive Retirement Payments. Except for the benefits described
in Paragraph 2 hereof, Purdom shall be entitled to no further compensation
from AFLAC; however, nothing in this Agreement shall expand or limit
Purdom's rights under the AFLAC Incorporated Pension Plan, the AFLAC
Incorporated Executive Deferred Compensation Plan or the AFLAC Incorporated
401(k) Savings and Profit Sharing Plan. This agreement shall not affect
Purdom's compensation or benefits as a member of the AFLAC Incorporated
Board of Directors.
2. CONTINUED HEALTH PLAN BENEFITS. Until Purdom becomes eligible for
(i) group health plan coverage under a plan sponsored by another employer or
(ii) Medicare benefits, whichever occurs earlier, he shall remain eligible
to continue his participation (and, to the extent elected, his spouse's and
dependent's participation) in the AFLAC Incorporated Group Health Plan under
terms similar to those available to active employees; provided, if he ceases
making the requisite contributions or terminates his coverage at any time
for any reason, his participation in said plan shall permanently cease. For
other AFLAC policies in which Purdom has coverage and which permit
conversion to an individual policy, he will be given an opportunity to
continue that coverage on a direct, individual basis. For coverage under
the AFLAC Incorporated Employee Dental Plan, Purdom's regular coverage will
cease as of June 30, 2000, and COBRA provisions will govern future coverage.
Purdom's coverage under the officers' group life insurance will cease as of
EXH 10.13-1
<PAGE>
June 30, 2000. After June 30, 2000, Purdom will not make further
contributions to the AFLAC Incorporated 401(k) Savings and Profit Sharing
Plan or the AFLAC Incorporated Executive Deferred Compensation Plan, nor
will he accrue any additional benefits under the AFLAC Incorporated Pension
Plan or the AFLAC Incorporated Supplemental Executive Retirement Plan.
Purdom will be provided information on his options for payment of any of his
vested accrued benefits under these plans.
3. CONSULTING SERVICES. For the period of time commencing July 1,
2000 and ending on the earliest of May 25, 2002, or the date of Purdom's
death or disability, Purdom agrees that he will be available to AFLAC on a
consulting basis to render advice or assistance as requested by AFLAC
Incorporated's Chief Executive Officer or other members of AFLAC's executive
management (collectively, "AFLAC's Executive Management"). AFLAC agrees
that all such requests for Purdom's assistance will be reasonable as to
time, place and manner. AFLAC also agrees that it shall make every effort
to coordinate in advance with Purdom's schedule any such requests for
services. AFLAC will reimburse Purdom for any necessary out-of-pocket
expenses he incurs as a result of providing those services to AFLAC.
4. NONCOMPETITION. The payment of all future payments of annual
retirement benefits to Purdom under this Agreement shall immediately and
permanently cease and be forfeited if AFLAC's Compensation Committee, in its
sole discretion, determines that, during the 2-year period commencing on
July 1, 2000, Purdom, without the prior written consent of AFLAC's Executive
Management whose consent shall not be unreasonably withheld, is
participating or engaging in any business that the Compensation Committee of
the Board of Directors of ALFAC Incorporated (the "Compensation Committee"),
in its sole discretion, determines is competitive with any of the business
activities of AFLAC (or any subsidiary or affiliate of AFLAC) in any states
or foreign countries in which AFLAC or any of its subsidiaries or affiliates
do business; provided, prior to causing a forfeiture as provided herein, the
Compensation Committee shall give Purdom written notice of its intent to do
so unless Purdom ceases such specifically identified competitive activities
within 15 days of his receipt of such notice. For purposes of this
paragraph, "participating or engaging in" means acting as an agent,
consultant, representative, officer, director, member, independent
contractor or employee; or as an owner, partner, limited partner, joint
venturer, creditor, or shareholder (except as a shareholder holding no more
than 1% interest in a publicly traded entity).
5. CONFIDENTIALITY.
(a) Acknowledgements. Purdom acknowledges that:
(i) During the term of his employment with AFLAC, he has been
privy to (A) certain confidential and propriety information
of AFLAC which constitutes trade secrets as defined in the
Georgia Trade Secret Act of 1990 (the "Act"), and
(B) certain other confidential proprietary information of
AFLAC that may not constitute trade secrets as defined in
the Act;
(ii) AFLAC must protect both kinds of information (described in
subsection (a)(i) hereof) from disclosure or
misappropriation;
EXH 10.13-2
<PAGE>
(iii) The processes, machines, technical documentation, computer
programs, customer lists, identity of customers, business
plans, marketing plans and techniques, pricing data,
financial data, marketing programs, customer files,
financial institution files, technical expertise and know
how, and other confidential and proprietary information and
trade secrets, whether as defined in the Act or which may
lie beyond it (collectively, the "Property"), which have
been provided to Purdom by AFLAC are unique, confidential
and proprietary property of AFLAC;
(iv) By the provision of the Property to Purdom, AFLAC has not
conveyed any ownership or other interest to Purdom; and
(v) The Property derives independent, actual and potential
commercial value from not being generally, readily
ascertainable through independent development and is the
subject of efforts by AFLAC that are reasonable under the
circumstances to maintain its secrecy.
(b) Agreement. Purdom agrees to hold in trust and confidence for AFLAC
and to not disclose to any third party, without the prior written consent of
AFLAC's Executive Management, the Property, whether it is tangible or
intangible. Purdom further agrees not to use any of the Property to his
personal benefit or for the benefit of any third party. Purdom also agrees
to return to AFLAC all such Property which is tangible upon the termination
of his employment hereunder. Notwithstanding the foregoing, the Property
protected hereunder will not include any data or information that has been
disclosed to the public (except where such public disclosure has been made
by Purdom without authorization), that has been independently developed and
disclosed by others, or that otherwise enters the public domain through
lawful means.
(c) Timing. Purdom's obligations under the nondisclosure provision in
this Paragraph 5 as it relates to Property that is confidential information
but that does not constitute trade secrets will apply for a period of 2
years following termination of Purdom's employment.
(d) Remedies. It is specifically agreed that, if Purdom engages in any
such activity prohibited under this Paragraph 5, AFLAC shall, in addition to
any other rights it may have under this Agreement and applicable law, be
entitled to injunctive relief or, if AFLAC shall so elect (due to difficulty
of determining damages), be entitled to liquidated damages in the amount of
$500,000. In addition, the payment of the annual retirement benefit to
Purdom under Paragraph 1 shall immediately cease and be forfeited if Purdom
engages in any such activity prohibited under this Paragraph 5 without the
prior written consent of AFLAC's Executive Management.
6. NON-SOLICITATION OF EMPLOYEES. Purdom agrees that, for 2 years
following the termination of his employment with AFLAC, unless otherwise
authorized by AFLAC's Executive Management, he will not actively recruit,
solicit or induce any person or entity, who within 1 year prior to
termination of his employment hereunder was an employee, agent,
representative or sales person of AFLAC or its affiliates, to leave or cease
his or her employment or other relationship with AFLAC for any reason
whatsoever.
EXH 10.13-3
<PAGE>
7. ERISA APPLICATION. It is the desire and intent of the parties that
the provisions of Paragraphs 4, 5 and 6 shall be enforced to the fullest
extent (i) permissible under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or (ii) to the extent ERISA is not preemptive,
under the laws and public policies applicable to each jurisdiction in which
enforcement is sought. If any provision or portion of Paragraph 4, 5 or 6
shall be adjudicated to be invalid or unenforceable, such paragraph shall be
amended to delete therefrom such provision or portion adjudicated to be
invalid or unenforceable and to substitute therefore such lesser provision
or portion thereof as shall then be valid and enforceable; provided, such
deemed amendment shall apply only with respect to the operation of Paragraph
4, 5 or 6 in the particular jurisdiction on which such adjudication is made.
8. RETURN OF PROPERTY. Purdom agrees that he will return to AFLAC any
and all company property in his possession, including but not limited to
credit cards, telephone calling cards, computers, pagers, reports and
materials, and will have any outstanding expenses and travel advances
reconciled by June 30, 2000. Purdom desires to purchase certain office
furnishings from AFLAC (attached hereto on Exhibit A) and may do so at their
fair market value price as determined by AFLAC.
9. RELEASE. As a condition to AFLAC paying the benefit provided
hereunder and as consideration therefor, Purdom shall, upon the termination
of his employment with AFLAC, execute and enter into the Release Agreement
in the form attached hereto as Exhibit B.
10. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, or the breach thereof, shall be settled by binding
arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The parties shall notify each other of
the existence of an arbitrable controversy by certified mail and shall
attempt in good faith to resolve their differences within 15 days after the
receipt of such notice. If the dispute cannot be resolved within the said
15-day period, either party may file a written demand for arbitration with
the other party. Purdom and AFLAC agree that they will seek to enforce any
arbitration award in the Superior Court of Muscogee County, Georgia. The
decision of the arbitrator shall be final and binding upon the parties, and
judgment upon the award rendered by the arbitrator may be entered by any
court having jurisdiction. Purdom and AFLAC agree to share equally the fees
and expenses associated with the arbitration proceedings.
11. TYPE OF OBLIGATIONS. This Agreement constitutes a nonqualified
deferred compensation plan covering a key management employee and thereby is
a pension plan covered by ERISA. AFLAC's obligations to pay benefits under
this Agreement constitute mere promises to pay such benefits, and Purdom
shall be and remain no more than an unsecured, general creditor of AFLAC.
12. TAXES. If the whole or any part of Purdom's benefit hereunder
shall become subject to any estate, inheritance, income, employment or other
tax which AFLAC or an affiliate shall be required to pay or withhold, AFLAC
shall have the full power and authority to withhold and pay such tax out of
any monies or other property in its hand for the account of Purdom. Prior
to making any payment, AFLAC may require such releases or other documents
from any lawful taxing authority as they shall deem necessary.
EXH 10.13-4
<PAGE>
13. CLAIMS.
(a) Initial Claim. Claims for benefits under this Agreement may be
filed with AFLAC in such written documents as the General Counsel for AFLAC
may prescribe. AFLAC shall furnish to Purdom written notice of the
disposition of a claim within 90 days after the application therefor is
filed, or such longer period as may be reasonably necessary but not to
exceed 180 days. In the event the claim is denied, the notice of the
disposition of the claim shall provide the specific reasons for the denial,
citations of the pertinent provisions of this Agreement, and, where
appropriate, an explanation as to how Purdom can perfect the claim and/or
submit the claim for review.
(b) Appeal. If Purdom's claim for benefits is denied, he may appeal
the denial of his claim to AFLAC's Compensation Committee. Purdom (or his
duly authorized representative) may review pertinent documents related to
this Agreement (if any) in AFLAC's possession in order to prepare the
appeal. The request for review, together with written statement of Purdom's
position, must be filed with the Compensation Committee no later than 60
days after receipt of the written notification of denial of a claim provided
for in subparagraph (a). The Compensation Committee's decision shall be
made within 60 days following the filing of the request for review, or such
longer period as may be reasonably necessary but not to exceed 120 days. If
unfavorable, the notice of the decision shall explain the reasons for denial
and indicate the provisions of this Agreement or other documents used to
arrive at the decision.
(c) Satisfaction of Claims. Any payment to Purdom shall, to the extent
thereof, be in full satisfaction of all claims hereunder against AFLAC, and
as a condition to such payment, AFLAC may require Purdom to execute a
receipt and release therefor in such form as shall be determined by AFLAC.
If receipt and release is required but Purdom does not provide such receipt
and release in a timely enough manner to permit a timely payment in
accordance with the general timing of payment under this Agreement, any
affected payment may be delayed until AFLAC receives a proper receipt and
release.
14. MISCELLANEOUS.
(a) No Assignment. The right of Purdom or any other person to receive
payments under this Agreement shall not be assigned, transferred, pledged or
encumbered.
(b) Controlling Law. This Agreement shall be construed, administered
and governed in all respects in accordance with applicable federal law
(including ERISA) and, to the extent not preempted by federal law, in
accordance with the laws of the State of Georgia. If any provisions of this
instrument shall be held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions hereof shall continue to be fully
effective.
(c) Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original, but all of which together will
constitute one and the same instrument.
(d) Headings, References. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
EXH 10.13-5
<PAGE>
construing or interpreting this Agreement. All references in this Agreement
to sections will, unless otherwise provided, refer to sections hereof.
(e) Amendments and Waivers. Except as otherwise specified herein, this
Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of AFLAC and
Purdom.
(f) No Third-Party Beneficiaries. Nothing herein, expressed or
implied, is intended or will be construed to confer upon or give to any
person, firm, corporation or legal entity, other than the parties hereto and
AFLAC's affiliates, any rights, remedies or other benefits under or by
reason of this Agreement.
(g) Notices. All notices, communications and deliveries hereunder must
be made in writing signed by or on behalf of the party making the same and
must be delivered personally or by telecopy transmission or electronic
network transmission or sent by registered or certified mail (return receipt
requested) or by any national overnight courier service (with postage and
other fees prepaid) as follows:
(i) To Purdom, at the address maintained in AFLAC's records from
time-to-time.
(ii) To AFLAC:
AFLAC Incorporated
Worldwide Headquarters
1932 Wynnton Road
Columbus, GA 31999-0001
Attn: General Counsel
or to such other representative or at such other address of a party as such
party hereto may furnish to the other parties in writing. Any such notice,
communication or delivery will be deemed given or made (i) on the date of
delivery if delivered in person (by courier service or otherwise), (ii) upon
transmission by facsimile or electronic network transmission if receipt is
confirmed by telephone, provided transmission is made during regular
business hours, or if not, the next business day, or (iii) on the third
business day after it is mailed by registered or certified mail.
(h) Binding Effect. This Agreement will be for the benefit of, and
will be binding upon, AFLAC and Purdom and their respective heirs, personal
representatives, legal representatives, successors and assigns.
(i) Sole Agreement. This Agreement is the sole agreement providing for
the benefits and other matters described herein, and any other additional or
conflicting document of any earlier date is hereby superseded.
EXH 10.13-6
<PAGE>
IN WITNESS WHEREOF, the Purdom has executed, and AFLAC has caused its
duly authorized officer to execute this Agreement on the date first written
above, all being done in duplicate originals, with one original being
delivered to each party.
/s/ E. Stephen Purdom
------------------------------
E. Stephen Purdom
AMERICAN FAMILY LIFE ASSURANCE
COMPANY OF COLUMBUS
By: /s/ Joey M. Loudermilk
---------------------------
EXH 10.13-7
<PAGE>
EXHIBIT A
OFFICE FURNISHINGS
Item Fair Market Value
---------- ---------------------
EXH 10.13-8
<PAGE>
EXHIBIT B
RELEASE AGREEMENT
This Release Agreement (this "Release") is entered into on the date(s)
signed below by and between American Family Life Assurance Company of
Columbus, a Georgia corporation (hereinafter referred to as "AFLAC") and E.
Stephen Purdom (hereafter referred to as "Purdom").
RECITALS
BACKGROUND. Purdom and AFLAC agree, and have entered into a Retirement
Agreement, dated February 16, 2000 (the "Retirement Agreement"), providing
for Purdom's Retirement from his employment with AFLAC as of June 30, 2000.
As provided in the Retirement Agreement, the benefits described in the
Retirement Agreement will become payable to Purdom only after he executes
this Release and it becomes effective and irrevocable.
NOW, THEREFORE, in exchange for the promise to receive certain benefits
under the Retirement Agreement, and other good and valuable consideration
the sufficiency of which is hereby acknowledged, Purdom and AFLAC agree as
follows:
1. RELEASE. As consideration for the benefits extended to Purdom under the
terms of the Retirement Agreement, benefits to which the Purdom acknowledges
he would not otherwise be entitled, Purdom agrees, for Purdom and his heirs
and assigns, to forever release and discharge AFLAC INCORPORATED and
AMERICAN FAMILY LIFE ASSURANCE COMPANY OF COLUMBUS, and its subsidiaries,
related companies, predecessors, successors and assigns, officers,
directors, agents, employees, and former employees from any and all claims,
debts, promises, agreements, demands, causes of action, losses and expenses
of every nature whatsoever known or unknown, suspected or unsuspected, filed
or unfiled, arising prior to the effective date of this Release, or arising
out of or in connection with Purdom's employment by and termination from
AFLAC and any affiliate of AFLAC. This total release includes, but is not
limited to, any claims that may arise under the Civil Rights Acts of 1964
and 1991, the Age Discrimination in Employment Act, the Rehabilitation Act
of 1973, the Older Worker's Benefit Protection Act, the Americans with
Disabilities Act of 1990 or any other federal, state or local law relating
to discrimination in employment or otherwise regulating the employment
relationship, or regulating the health or safety of the workplace. This
Release does not extend to unemployment compensation claims or workers'
compensation claims. Purdom does not waive or release any claims that may
arise after the effective date of this Release, which are based upon actions
or omissions of AFLAC that occur after such date.
2. COVENANT NOT TO SUE. Purdom agrees that he will not file any action or
suit contesting the legality of the termination of his employment or the
validity of this Release or attempting to negate, modify or reform this
Release. Purdom warrants and represents that Purdom has not assigned or in
any way conveyed, transferred or encumbered all or any portion of the claims
or rights covered by this Release.
3. EFFECTIVE DATE OF RELEASE. Purdom understands and acknowledges that he
may take up to 21 days to consider whether or not he desires to enter into
this Release. Purdom warrants and represents that he was not coerced,
threatened or otherwise forced to sign this Release. Purdom represents and
EXH 10.13-9
<PAGE>
acknowledges that any execution of this Release is done on a voluntary
basis. After signing and delivering this Release to AFLAC, Purdom will have
7 calendar days during which he may choose to revoke this Release. If
Purdom chooses to revoke this Release, it must be done so in writing and
delivered to AFLAC. Purdom and AFLAC acknowledge and agree that this
Release is not effective until and upon the expiration of such 7-day
revocation period. After expiration of the 7-day revocation period, this
Release will be binding upon Purdom and AFLAC and will be irrevocable.
4. ACKNOWLEDGMENT. Purdom warrants and represents to AFLAC as follows:
(a) Purdom has had ample time to review all of the provisions of this
Release and fully understands it.
(b) Purdom has been encouraged by AFLAC to review all provisions of
this Release with independent legal counsel and other advisors and
has had the opportunity to pursue such a review.
EXECUTED by AFLAC and Purdom on the dates set forth below.
AMERICAN FAMILY LIFE ASSURANCE
COMPANY OF COLUMBUS ("AFLAC")
By: /s/ Joey M. Loudermilk
--------------------------------
Date: 2/16/2000
------------------------------
E. STEPHEN PURDOM
/s/ E. Stephen Purdom
-----------------------------------
Signature
February 16, 2000
-----------------------------------
Date
EXH 10.13-10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>5
<FILENAME>k00e12.txt
<DESCRIPTION>RATIO OF EARNINGS
<TEXT>
<PAGE>
EXHIBIT 12
EXH 12
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
Years Ended December 31,
(In thousands) 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Fixed charges:
Interest expense $ 19,252 $ 18,233 $ 13,152 $ 13,709 $ 16,186
Rental expense
deemed interest 600 558 378 439 563
--------- ------- ------- ------- -------
Total fixed charges $ 19,852 $ 18,791 $ 13,530 $ 14,148 $ 16,749
========= ======= ======= ======= =======
Earnings before
income tax $1,012,494 $778,367 $550,793 $864,820 $650,001
Add back:
Fixed charges 19,852 18,791 13,530 14,148 16,749
--------- ------- ------- ------- -------
Total earnings
before income tax
and fixed charges 1,032,346 797,158 564,323 878,968 666,750
Adjustments:
Realized (gains)/losses 101,990 13,496 2,077 5,440 (1,980)
Gain on sale of
television business - - - (267,223) (60,264)
--------- ------- ------- ------- -------
Total realized
(gains)/losses 101,990 13,496 2,077 (261,783) (62,244)
--------- ------- ------- ------- -------
Total earnings before
income tax and fixed
charges and realized
(gains)/losses $1,134,336 $810,654 $566,400 $617,185 $604,506
========= ======= ======= ======= =======
Earnings before income
taxes and fixed
charges 52.0x 42.4x 41.7x 62.1x 39.8x
Earnings before income
taxes and fixed
charges, as adjusted 57.1x 43.1x 41.9x 43.6x 36.1x
EXH 12-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>6
<FILENAME>k00e13.txt
<DESCRIPTION>FINANCIAL INFORMATION FROM ANNUAL REPORT
<TEXT>
<PAGE>
EXHIBIT 13
EXH 13
<PAGE>
EXHIBIT 13
The following information is contained in the 2000 Annual Report to
Shareholders. The required information incorporated by reference to the
preceding pages of this 2000 Form 10-K have been reproduced herein as Exhibit
13 for purposes of electronic filing of this Form 10-K.
PART II
ITEM 5. (a) Market Information:
The Company's common stock is principally traded on the New York Stock
Exchange. The Company is also listed on the Pacific Stock Exchange and the
Tokyo Stock Exchange.
The high, low and closing quarterly sales prices for the Company's common
stock, as published in the U.S. consolidated transaction reporting system, for
the last three fiscal years ended December 31, 2000, are as follows:
Quarterly Common Stock Prices
2000 High Low Close
---------------------------------------------------------------------
4th Quarter $ 37.47 $ 29.19 $ 36.10
3rd Quarter 33.75 22.53 32.03
2nd Quarter 26.97 21.88 22.97
1st Quarter 23.57 16.78 22.78
1999 High Low Close
--------------------------------------------------------------------
4th Quarter $ 27.13 $ 20.94 $ 23.60
3rd Quarter 24.69 20.41 20.94
2nd Quarter 28.38 22.25 23.94
1st Quarter 27.25 19.50 27.22
1998 High Low Close
--------------------------------------------------------------------
4th Quarter $ 22.66 $ 12.75 $ 21.94
3rd Quarter 19.13 12.57 14.28
2nd Quarter 17.25 14.75 15.16
1st Quarter 16.81 11.35 15.82
Adjusted to reflect two-for-one stock split distributed on March 16, 2001.
EXH 13-1
<PAGE>
ITEM 5. (b) Holders:
2000 1999 1998
- ---------------------------------------------------------------------------
Number of common
shares outstanding 529,209,956 531,481,632 531,368,068
Number of registered
common shareholders 67,995 69,899 62,525
Approximate number of
common shareholders 143,400 148,600 145,500
Share amounts have been adjusted to reflect the two-for-one stock split
distributed on March 16, 2001.
ITEM 5. (c) Quarterly cash dividends:
2000 1999
------ ------
4th Quarter $.043 $.038
3rd Quarter .043 .038
2nd Quarter .043 .038
1st Quarter .038 .033
Per-share amounts have been adjusted to reflect the two-for-one
stock split distributed on March 16, 2001.
For information concerning dividend restrictions, see Management's
Discussion and Analysis of Financial Condition, the section concerning
shareholders' equity, presented in this Exhibit 13 on page 13-23, and Note 9,
Statutory Accounting and Dividend Restrictions, of the Notes to the
Consolidated Financial Statements, also presented in this Exhibit 13 on page
13-65.
EXH 13-2
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(In millions, except for share and per-share amounts)
<CAPTION>
AFLAC INCORPORATED AND SUBSIDIARIES
For the Year 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Premiums, principally supplemental
health insurance $ 8,239 $ 7,264 $ 5,943 $ 5,874 $ 5,910
Net investment income 1,550 1,369 1,138 1,078 1,022
Realized investment gains (losses) (102) (13) (2) (5) 2
Gain on sale of television business - - - 267 60
Other income 33 20 25 37 106
-------- -------- -------- -------- --------
Total revenues 9,720 8,640 7,104 7,251 7,100
-------- -------- -------- -------- --------
Benefits and expenses:
Benefits and claims 6,618 5,885 4,877 4,833 4,896
Expenses 2,090 1,977 1,676 1,553 1,554
-------- -------- -------- -------- --------
Total benefits and expenses 8,708 7,862 6,553 6,386 6,450
-------- -------- -------- -------- --------
Pretax earnings 1,012 778 551 865 650
Income taxes 325 207 64 280 256
-------- -------- -------- -------- --------
Net earnings $ 687(1) $ 571(2) $ 487(3) $ 585(4) $ 394(5)
======== ======== ======== ======== ========
- ---------------------------------------------------------------------------------------------------------------------------
Per Common Share
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (basic) $ 1.30(1) $ 1.07(2) $ .91(3) $ 1.07(4) $ .70(5)
Net earnings (diluted) 1.26(1) 1.04(2) .88(3) 1.04(4) .68(5)
Cash dividends .167 .147 .128 .112 .097
Shareholders' equity 8.87 7.28 7.09 6.44 3.85
Price range: High 37.47 28.38 22.66 14.47 11.00
Low 16.78 19.50 11.35 9.38 7.07
Close 36.10 23.60 21.94 12.78 10.69
Price/earnings ratio:* High 31.2x 28.4x 29.1x 21.9x 18.3x
Low 14.0 19.5 14.6 14.2 11.8
Common shares used for basic EPS (In thousands) 530,607 531,737 532,609 544,220 560,704
Common shares used for diluted EPS (In thousands) 544,906 550,845 551,745 563,192 577,843
- ---------------------------------------------------------------------------------------------------------------------------
EXH 13-3
<PAGE>
(In millions, except for share and per-share amounts)
<CAPTION>
AFLAC INCORPORATED AND SUBSIDIARIES
At Year-End 2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets:
Investments and cash $ 32,167 $ 32,024 $ 26,994 $ 22,880 $ 20,744
Other 5,065 5,017 4,228 6,590 4,286
-------- -------- -------- -------- --------
Total assets $ 37,232 $ 37,041 $ 31,222 $ 29,470 $ 25,030
======== ======== ======== ======== ========
Liabilities and shareholders' equity:
Policy liabilities $ 28,566 $ 29,604 $ 24,034 $ 19,885 $ 20,234
Notes payable 1,079 1,018 596 523 354
Income taxes 1,894 1,511 1,865 1,827 1,181
Other liabilities 999 1,040 957 3,805 1,135
Shareholders' equity 4,694 3,868 3,770 3,430 2,126
-------- -------- -------- -------- --------
Total liabilities and shareholders' equity $ 37,232 $ 37,041 $ 31,222 $ 29,470 $ 25,030
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Operating earnings** $ 657 $ 550 $ 429 $ 374 $ 347
Operating earnings per share (basic)** 1.24 1.03 .81 .69 .62
Operating earnings per share (diluted)** 1.20 1.00 .78 .66 .60
Pretax profit margin*** 10.3% 9.9% 9.3% 8.6% 8.4%
After-tax profit margin*** 6.7% 6.4% 6.0% 5.4% 4.9%
Operating return on equity**** 21.7% 20.9% 18.7% 18.8% 19.9%
Yen/dollar exchange rate at year-end (yen) 114.75 102.40 115.70 130.10 116.10
Average yen/dollar exchange rate (yen) 107.83 113.96 130.89 121.07 108.84
(1) Includes a benefit of $99 ($.19 per basic share, $.18 per diluted share) from the termination of a retirement liability;
(2) Includes gain of $67 ($.13 per basic share, $.12 per diluted share) due to a reduction in deferred tax liabilities from a
tax rate cut in Japan and a charge of $41 ($.08 per basic share, $.07 per diluted share) for the policyholder protection fund
in 1999 in Japan; (3) Includes gain of $121 ($.23 per basic share, $.22 per diluted share) due to a reduction in deferred
income tax liabilities from a tax rate cut in Japan and a charge of $65 ($.12 per basic and diluted share) for the
policyholder protection fund in Japan in 1998; (4) Includes gain of $211 ($.39 per basic share, $.38 per diluted share) from
the sale of the broadcast business in 1997; (5) Includes gain of $48 ($.09 per basic share, $.08 per diluted share) from the
sale of the broadcast business in 1996; (*) Based on diluted operating earnings per share; (**) Excludes realized investment
gains/losses and the gains from the sale of the television business in 1996 and 1997; excludes charges for the policyholder
protection fund and benefits of tax rate reductions in 1998 and 1999; excludes gain from release of retirement liability in
2000; (***) Operating basis; (****) Based on operating earnings and excluding unrealized gains on investment securities, net.
Share and per-share amounts have been adjusted to reflect the two-for-one stock split payable on March 16, 2001.
EXH 13-4
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AFLAC Incorporated is the parent company of American Family Life
Assurance Company of Columbus, AFLAC. Our principal business is supplemental
health and life insurance, which is marketed and administered through AFLAC.
Most of AFLAC's policies are individually underwritten and marketed at
worksites through independent agents, with premiums paid by the employee. Our
operations in Japan (AFLAC Japan) and the United States (AFLAC U.S.) service
the two markets for our insurance business.
On February 13, 2001, the board of directors declared a two-for-one stock
split, effectively increasing the number of shares by 100%. All share and
per-share amounts have been restated for the split.
RESULTS OF OPERATIONS
Several significant nonoperating items affected earnings during the
three-year period ended December 31, 2000.
In the second quarter of 2000, the release of an accrued unfunded
liability for projected retirement payments increased pretax earnings by $101
million ($99 million after taxes, or $.19 per basic share and $.18 per diluted
share). (See Note 10 of the Notes to the Consolidated Financial Statements.)
During the second quarter of 2000, we sold one security reported as
available for sale at a pretax loss of $34 million. We also recorded a pretax
impairment loss of $57 million on another security, which was carried in the
held-to-maturity category. These losses are included in realized investment
gains and losses. The combined effect of these losses decreased net earnings
by $58 million ($.11 per basic and diluted share) for the year ended December
31, 2000.
In both 1998 and 1999, corporate income tax rate reductions were enacted
in Japan. The statutory tax rate for AFLAC Japan declined from 45.3% to 41.7%
in 1998 and from 41.7% to 36.2% in 1999. These tax rate declines caused
reductions in our deferred income tax liability. The deferred tax effect for
the 1998 tax reduction was recognized in the first quarter of 1998, increasing
net earnings by $121 million ($.23 per basic share and $.22 per diluted
share). The deferred tax effect for the 1999 tax reduction was recognized in
the first quarter of 1999, increasing net earnings by $67 million ($.13 per
basic share and $.12 per diluted share).
Another factor affecting net earnings was the policyholder protection
system established by the Japanese government during the first quarter of
1998. The pretax charge for our obligation to the protection fund was $111
million ($65 million after taxes, or $.12 per basic and diluted share). In
1999, the Japanese government and the life insurance industry agreed to
legislation that increased the life insurance industry's legal obligation to
the fund. Our share of the industry's obligation was recognized in the fourth
quarter of 1999 and decreased pretax earnings by $64 million ($41 million
after taxes, or $.08 per basic share and $.07 per diluted share). For further
information regarding the policyholder protection fund, see Note 2 of the
Notes to the Consolidated Financial Statements.
EXH 13-5
<PAGE>
The results of operations by business segment, together with nonoperating
items, for the three-year period ended December 31, 2000, were as follows.
SUMMARY OF OPERATING RESULTS BY BUSINESS SEGMENT
(In millions, except for per-share amounts)
Percentage change Years ended
over previous year December 31,
------------------ ---------------------
2000 1999 2000 1999 1998
------------------ ---------------------
Operating earnings:
AFLAC Japan. . . . . . . . . . . . 18.6% 29.6% $ 771 $ 651 $ 502
AFLAC U.S. . . . . . . . . . . . . 13.3 11.4 290 256 230
Other business segments. . . . . . (6) (4) 2
----- ----- -----
Total business segments . . . . 16.8 23.2 1,055 903 734
Interest expense, noninsurance
operations . . . . . . . . . . . (9.3) (40.9) (16) (15) (10)
Corporate and eliminations . . . . 19.9 45.0 (26) (32) (60)
----- ----- -----
Pretax operating earnings. . . . 18.3 28.9 1,013 856 664
Income taxes . . . . . . . . . . . 16.4 30.4 356 306 235
----- ----- -----
Operating earnings . . . . . . . 19.4 28.1 657 550 429
Nonoperating items:
Realized investment gains
(losses), net of tax. . . . . . . (69) (5) 2
Release of retirement liability,
net of tax . . . . . . . . . . . 99 - -
Deferred income tax benefit from
Japanese tax rate reductions . . - 67 121
Provisions for the policyholder
protection fund, net of tax. . . - (41) (65)
----- ----- -----
Net earnings . . . . . . . . . . 20.3% 17.4% $ 687 $ 571 $ 487
==== ==== ===== ===== =====
Operating earnings per basic share . 20.4% 27.2% $ 1.24 $ 1.03 $ .81
Operating earnings per diluted share 20.0 28.2 1.20 1.00 .78
==== ==== ===== ===== =====
Net earnings per basic share . . . . 21.5% 17.6% $ 1.30 $ 1.07 $ .91
Net earnings per diluted share . . . 21.2 18.2 1.26 1.04 .88
==== ==== ===== ===== =====
Per-share amounts have been adjusted to reflect the two-for-one stock split
payable on March 16, 2001.
=============================================================================
The following discussion of earnings comparisons focuses on operating
earnings and excludes realized investment gains/losses, the gain from the
release of the retirement accrual in 2000, the deferred income tax benefits
from the Japanese income tax rate reductions, and the charges for the
policyholder protection fund. Operating earnings per share amounts referenced
in the following discussion are based on the diluted number of average
outstanding shares and reflect the two-for-one stock split payable on March
16, 2001.
EXH 13-6
<PAGE>
FOREIGN CURRENCY TRANSLATION
Due to the relative size of AFLAC Japan, fluctuations in the yen/dollar
exchange rate can have a significant effect on our reported results. In years
when the yen weakens, translating yen into dollars causes fewer dollars to be
reported. When the yen strengthens, translating yen into dollars causes more
dollars to be reported.
The following table illustrates the effect of foreign currency
translation by comparing our reported operating results with those that would
have been reported had foreign currency rates remained unchanged from the
previous year.
FOREIGN CURRENCY TRANSLATION EFFECT ON OPERATING RESULTS
(Years ended December 31)
Including Foreign Excluding Foreign
Currency Changes Currency Changes*
------------------------ ------------------------
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
Premium income 13.4% 22.2% 1.2% 8.5% 9.4% 7.7%
Net investment income 13.2 20.3 5.6 9.6 10.7 11.1
Operating revenues 13.5 21.8 1.7 8.8 9.5 8.0
Total benefits and
expenses 13.0 21.0 .9 8.0 8.3 7.4
Operating earnings 19.4 28.1 14.6 16.5 20.6 18.6
Operating earnings
per share 20.0 28.2 18.2 18.0 20.5 21.2
- ----------------------------------------------------------------------------
* Amounts excluding foreign currency changes were determined using the
same yen/dollar exchange rate for the current year as each respective
prior year.
============================================================================
The yen strengthened in relation to the dollar during 1999 and 2000 after
several years of weakening. The average yen/dollar exchange rates were 107.83
in 2000, 113.96 in 1999 and 130.89 in 1998. The stronger yen in 2000 and 1999
increased operating earnings per share by $.02 in 2000 compared with 1999 and
by $.06 in 1999 compared with 1998. The weaker yen in 1998 lowered operating
earnings per share by $.02 in 1998 compared with 1997. Reported operating
earnings per share increased 20.0% to $1.20 in 2000, 28.2% to $1.00 in 1999
and 18.2% to $.78 in 1998.
Our primary financial objective is the growth of operating earnings per
share excluding the effect of foreign currency fluctuations. Our goal for
2000 was 17% growth, which we exceeded. Excluding the effect of currency
fluctuations, operating earnings per share increased 18.0% in 2000 compared
with 1999, 20.5% in 1999 compared with 1998, and 21.2% in 1998 compared with
1997.
EXH 13-7
<PAGE>
Our objective for 2001 and 2002 is to increase operating earnings per
share by 15% to 17% excluding the impact of currency translation. We expect
to achieve the high end of our objective for 2001. If we achieve a 16.7%
increase, the following table shows the likely results for operating earnings
per share in 2001 using various yen/dollar exchange rate scenarios.
2001 OPERATING EPS SCENARIOS
Annual Average Yen Annual Operating % Growth Yen Impact
Exchange Rate Diluted EPS Over 2000 on EPS
- ------------------ ---------------- --------- ----------
100.00 $ 1.45 20.8% $ .05
105.00 1.42 18.3 .02
107.83* 1.40 16.7 -
110.00 1.39 15.8 (.01)
115.00 1.36 13.3 (.04)
120.00 1.34 11.7 (.06)
125.00 1.31 9.2 (.09)
*Actual 2000 average exchange rate
INCOME TAXES
Our combined U.S. and Japanese effective income tax rates on operating
earnings were 35.2% in 2000, 35.8% in 1999 and 35.4% in 1998. Japanese income
taxes on AFLAC Japan's operating results accounted for most of our income tax
expense.
EXH 13-8
<PAGE>
INSURANCE OPERATIONS, AFLAC JAPAN
AFLAC Japan, a branch of AFLAC and the principal contributor to our
earnings, ranks number one in terms of premium income and profits among all
foreign life and non-life insurance companies operating in Japan. Among all
life insurance companies operating in Japan, AFLAC Japan ranked second in
terms of individual policies in force and 12th in terms of assets according to
Financial Services Agency (FSA) data as of September 30, 2000.
The following table presents a summary of AFLAC Japan's operating
results.
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
(In millions) 2000 1999 1998
---------------------------------
Premium income . . . . . . . . . . . . $ 6,684 $ 5,906 $ 4,738
Investment income. . . . . . . . . . . 1,261 1,111 917
Other income . . . . . . . . . . . . . 7 4 2
------ ------ ------
Total revenues . . . . . . . . . . . 7,952 7,021 5,657
------ ------ ------
Benefits and claims. . . . . . . . . . 5,649 5,039 4,119
Operating expenses . . . . . . . . . . 1,532 1,331 1,036
------ ------ ------
Total benefits and expenses. . . . . 7,181 6,370 5,155
------ ------ ------
Pretax operating earnings. . . . . . $ 771 $ 651 $ 502
====== ====== ======
- ------------------------------------------------------------------------------
Percentage changes in dollars
over previous year:
Premium income . . . . . . . . . . . 13.2% 24.6% (1.4)%
Investment income. . . . . . . . . . 13.5 21.2 2.7
Total revenues . . . . . . . . . . . 13.3 24.1 (.7)
Pretax operating earnings. . . . . . 18.6 29.6 (.4)
- ------------------------------------------------------------------------------
Percentage changes in yen
over previous year:
Premium income . . . . . . . . . . . 7.1% 8.5% 6.6%
Investment income. . . . . . . . . . 7.4 5.2 11.0
Total revenues . . . . . . . . . . . 7.2 8.0 7.3
Pretax operating earnings. . . . . . 12.3 12.3 7.5
- ------------------------------------------------------------------------------
Ratios to total revenues in dollars:
Benefits and claims. . . . . . . . . 71.0% 71.8% 72.8%
Operating expenses . . . . . . . . . 19.3 18.9 18.3
Pretax operating earnings. . . . . . 9.7 9.3 8.9
==============================================================================
EXH 13-9
<PAGE>
JAPANESE ECONOMY
For the last several years, Japan has been working to overcome its
depressed economy. The financial strength of many Japanese businesses
continued to deteriorate in 2000 with some experiencing bankruptcy or
requesting financial protection or assistance. As we have indicated in the
past, Japan's weak economy has created a challenging environment for AFLAC
Japan, as yields available for new investments remain at historically low
levels and consumer confidence continues to lag. The time required for the
Japanese economy to fully recover remains uncertain.
AFLAC JAPAN SALES
AFLAC Japan produced strong sales results during the last three years,
despite the weak Japanese economy. New annualized premium sales were: $921
million in 2000, up 20.4%; $765 million in 1999, up 32.2%; and $579 million in
1998, up 11.4%. New annualized premium sales in yen were: 99.8 billion yen in
2000, up 14.6%; 87.0 billion yen in 1999, up 15.4%; and 75.4 billion yen in
1998, up 19.9%.
The percentage increases in premium income reflect the growth of premiums
in force. The increases in annualized premiums in force in yen of 6.3% in
2000, 8.7% in 1999 and 7.2% in 1998 reflect the high persistency of AFLAC
Japan's business and the sales of new policies. Annualized premiums in force
were: 740.4 billion yen, 696.6 billion yen and 640.8 billion yen at December
31, 2000, 1999 and 1998, respectively. As a result of fluctuations in year-
end exchange rates, annualized premiums in force, as measured in dollars,
were: $6.5 billion, $6.8 billion and $5.5 billion at December 31, 2000, 1999
and 1998, respectively.
In addition to strong sales growth, we also continued to grow our
distribution system in Japan. During 2000, we recruited 2,039 new agencies.
We believe that new agencies will continue to be attracted to AFLAC Japan's
high commissions, superior products, customer service and brand image.
We continued to invest in marketing to improve sales. An improved
incentive pay system for AFLAC Japan's employed sales managers was introduced
in 2000 to provide better rewards for sales performance. We introduced a new
optional commission contract in July 2000 that was structured to attract new
agents. The new contract pays a higher first-year commission and limits
renewal commissions to nine years. Our original contract pays renewal
commissions for the life of the policy.
We increased expenditures during the last three years for expanded sales
promotion efforts in Japan and will continue to do so in 2001. Additionally,
we will continue to aggressively promote our brand and products through
advertising. We plan on improving the products we offer and introducing new
ones. We will invest in new technologies, including our laptop sales aid, to
maintain our cost and service advantages.
We also continued to refine our product line. In mid-2000, we began
selling new, lower-premium cancer life and care products to meet the needs
of cost-sensitive buyers. Approximately 29% of new cancer life and 59% of
care policy sales were from the lower-premium products. At the end of 2000,
we introduced a major revision to our cancer life product. Our new cancer
life product offers a variety of coverage choices to our customers. As a
EXH 13-10
<PAGE>
result, employers will be able to customize an AFLAC cancer life policy that
best suits the needs of their workers.
Rider MAX, which provides accident and medical/sickness benefits as a
rider to our cancer life policy, has been extremely popular since its
introduction in 1998.
AFLAC Japan's sales mix as measured in yen has changed during the last
few years. Cancer life sales accounted for 40.3% of total sales in 2000,
46.7% in 1999, and 49.7% in 1998. Rider MAX accounted for 41.2% of sales in
2000, 39.6% in 1999, and 33.0% in 1998. Ordinary life and annuities
accounted for 13.6% of sales in 2000 compared with 7.8% in 1999 and 3.8% in
1998.
Although consumer confidence continued to lag because of the economic
worries and concerns over the financial strength of insurers, AFLAC products
remained popular. Our reputation for financial strength, combined with a
diverse product line and aggressive sales and marketing, helped us grow over
the last three years in spite of the difficult economy. AFLAC sold more
insurance policies than any other life insurance company in Japan for the
first half of the Japanese fiscal year.
Our objective for 2001 is to increase sales in yen by 15% compared with
2000.
AFLAC JAPAN INVESTMENTS
Investment income is affected by available cash flow from operations,
investment yields achievable on new investments and foreign currency exchange
rates on dollar-denominated investment income. The stronger yen has the
effect of reducing dollar-denominated investment income as reported in yen.
Also, rates of return on yen-denominated debt securities in Japan remained low
in 2000. For instance, the yield on 10-year Japanese government bonds, as
measured by a composite index, fluctuated from a high of 1.97% in September
2000 to a low of 1.54% in December 2000 and closed the year at 1.63%.
Investment income in yen increased 7.4% in 2000, compared with 5.2% in 1999
and 11.0% in 1998.
AFLAC Japan's new money rates for investments in debt securities
(including dollar-denominated investments) were 3.78% for 2000, 4.74% for 1999
and 4.19% for 1998. The overall rate of return, net of investment expenses,
on AFLAC Japan's average investments and cash at amortized cost has declined.
These returns, which were 4.82% in 2000, 5.01% in 1999 and 5.26% in 1998,
reflect the cumulative effect of lower investment yields available in Japan
since the early 1990s.
AFLAC Japan has invested in reverse-dual currency securities and other
private placement securities to secure higher yields than Japanese government
bonds would have provided while still adhering to prudent standards for credit
quality. We believe that we can invest new money in the near term at an
adequate spread over policy premium pricing assumptions for new business and
assumed interest rates for policy liabilities. To compensate for lower
investment yields, we have implemented premium rate increases over the last
several years, including one in 1999, which should contribute to stability in
the pretax operating profit margin.
EXH 13-11
<PAGE>
INSURANCE DEREGULATION IN JAPAN
Trade talks in 1994 and 1996 between the governments of the United States
and Japan, and Japan's 1996 plan for a financial "Big Bang," produced a
framework for the deregulation of the Japanese insurance industry. These
measures called for the gradual liberalization of the industry through the
year 2001 and included provisions to avoid "radical change" in the third
sector of the insurance industry. AFLAC and other foreign-owned insurers, as
well as many small to medium-sized Japanese insurers, operate primarily in the
third sector.
As of January 1, 2001, additional insurance companies were permitted to
sell the type of third-sector products that AFLAC Japan currently offers. We
anticipate that by July 1, 2001, all insurance companies will be permitted to
compete in the third sector. As a result, we expect competition to increase.
However, we also expect increased product and distribution opportunities for
AFLAC Japan. In order to respond to the expected increase in competition
and the opportunities available to us, we have taken action to expand our
marketing initiatives and enhance our competitiveness.
In the third quarter of 2000, AFLAC Japan and Dai-ichi Mutual Life
Insurance Company (Dai-ichi Life) agreed to a major marketing alliance that
anticipates the sale of each company's products through their respective
distribution systems. The initial focus will be the sale of AFLAC Japan's
cancer life and Rider MAX products through Dai-ichi Life's sales force of
50,000 people. Sales are expected to commence in the second quarter of
2001, pending approval by regulatory authorities.
As previously mentioned, we plan to continue expanding our distribution
system through the addition of new agencies. In support of this objective,
we introduced a commission contract in July 2000 that is structured to
attract new agents.
We recognize that we will face increasing competition in the future,
and we continue to look for ways to improve. At the same time, we believe
companies will find it difficult to compete with us because our low-cost
structure allows us to provide competitive benefits and services to
policyholders and above-average compensation to our sales force.
AFLAC JAPAN - OTHER
The increase in the expense ratio in 2000 and 1999 was primarily due to
increased expenditures for sales promotion, marketing and advertising.
The benefit ratio has declined primarily due to the mix of business
shifting to newer products, which have a lower loss ratio than the earlier
versions of the cancer life product. The pretax operating profit margin was
9.7% in 2000, compared with 9.3% in 1999 and 8.9% in 1998. The expansion of
the margin was largely due to the declining benefit ratio.
In July 2000, we initiated a voluntary internal compliance review to
examine the solicitation practices of our agents and to determine the extent
to which inappropriate premium discounts, if any, may have been given to
customers, and to put in place any corrective measures necessary to ensure
full regulatory compliance in the future. We informed the FSA at the time
the review was initiated. The results of this review have been provided to
EXH 13-12
<PAGE>
the FSA, including AFLAC Japan's proposed steps to strengthen and improve
the internal control system and the internal disciplinary actions that have
been taken against certain employees. The FSA requested that AFLAC Japan
make periodic reports regarding the progress being made to implement these
measures. The FSA also notified AFLAC Japan that it will not impose any
administrative sanction in connection with the results of this compliance
review.
Although Japan's economic outlook remains uncertain, we continue to
believe it is one of the best insurance markets in the world for
supplemental insurance products. The need for our products in Japan
continues, and we remain optimistic about increasing penetration within
existing groups, selling new products, opening new accounts and developing
additional supplemental products for the Japanese market.
INSURANCE OPERATIONS, AFLAC U.S.
The following table presents a summary of AFLAC U.S. operating results.
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
(In millions) 2000 1999 1998
----------------------------------
Premium income . . . . . . . . . . . . . $ 1,554 $ 1,358 $ 1,198
Investment income. . . . . . . . . . . . 277 245 216
Other income . . . . . . . . . . . . . . 5 3 4
------ ------ ------
Total revenues . . . . . . . . . . . . 1,836 1,606 1,418
------ ------ ------
Benefits and claims. . . . . . . . . . . 969 845 749
Operating expenses . . . . . . . . . . . 577 505 439
------ ------ ------
Total benefits and expenses. . . . . . 1,546 1,350 1,188
------ ------ ------
Pretax operating earnings. . . . . . $ 290 $ 256 $ 230
====== ====== ======
- -----------------------------------------------------------------------------
Percentage changes over previous year:
Premium income . . . . . . . . . . . . 14.4% 13.4% 12.8%
Investment income. . . . . . . . . . . 13.2 13.1 20.3
Total revenues . . . . . . . . . . . . 14.3 13.2 14.1
Pretax operating earnings. . . . . . . 13.3 11.4 24.9
- -----------------------------------------------------------------------------
Ratios to total revenues:
Benefits and claims. . . . . . . . . . 52.8% 52.6% 52.8%
Operating expenses . . . . . . . . . . 31.4 31.4 31.0
Pretax operating earnings. . . . . . . 15.8 16.0 16.2
=============================================================================
EXH 13-13
<PAGE>
AFLAC U.S. SALES
New annualized premium sales were: $712 million in 2000, up 28.3%; $555
million in 1999, up 15.1%; and $482 million in 1998, up 20.3%.
Accident/disability coverage continued to be our best-selling product,
accounting for approximately 55% of sales in 2000 and 56% of sales in both
1999 and 1998. Cancer expense insurance accounted for 23% to 25% of sales
during the three-year period ending December 31, 2000. Our newest product,
dental insurance, was introduced in July 2000 and generated 3.4% of sales in
2000. Our objective for 2001 is to increase sales by 12% to 15%.
The percentage increases in premium income reflect the growth of premiums
in force. The increases in annualized premiums in force of 16.9% in 2000,
14.3% in 1999 and 14.6% in 1998 were favorably affected by increased sales at
the worksite primarily through cafeteria plans and an improvement in the
persistency of several products. Annualized premiums in force were: $1.9
billion at December 31, 2000; $1.6 billion at December 31, 1999; and $1.4
billion at December 31, 1998.
AFLAC U.S. INVESTMENTS
Investment income increased 13.2% in 2000, compared with 13.1% in 1999
and 20.3% in 1998. The larger increase in 1998 was due to investing the
majority of the annual profits repatriated from AFLAC Japan in 1997.
Investment income in 1998 also benefited from investing the proceeds from the
sale of the television business in 1997. During 2000, available cash flow was
invested at an average yield of 8.22% compared with 7.93% during 1999 and
7.71% during 1998. The overall return on average invested assets, net of
investment expenses, was 7.62% for 2000, compared with 7.51% for 1999 and
7.44% for 1998.
AFLAC U.S. - OTHER
We expect the operating expense ratio, excluding discretionary
advertising expenses, to remain relatively level in the future. State-of-the-
art technology is one way we can control expense growth, and SmartApp, a
laptop-based, point-of-sale system, is a good example. In 2000, SmartApp
enabled us to process approximately 78% of our payroll business
electronically. About half of these policies required no human intervention.
The electronic imaging of our claims and correspondence is also benefiting our
expense ratio. By improving administrative systems and controlling other
costs, we have been able to redirect funds in recent years to our advertising
program without significantly affecting the operating expense ratio.
The aggregate benefit ratio has been relatively stable. The mix of
business has shifted toward accident/disability policies, which have lower
benefit ratios than other products.
We expect the pretax operating profit margin to remain approximately the
same in 2001.
We continue to believe that there are significant opportunities to market
high-quality, affordable supplemental insurance products in the U.S.
marketplace.
EXH 13-14
<PAGE>
OTHER OPERATIONS
Corporate expenses are net of investment income of $12 million in 2000,
$13 million in 1999 and $2 million in 1998. Corporate operating expenses
consist primarily of salary and facilities expenses. Corporate expenses,
excluding investment income, were $38 million in 2000, $45 million in 1999 and
$60 million in 1998. The reduction in corporate expenses primarily reflects
lower retirement expense.
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
We will adopt Statement of Financial Accounting Standards (SFAS) No. 133
as amended, Accounting for Derivative Instruments and Hedging Activities, on
January 1, 2001. This statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in investment securities and other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet, and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative will be included
in either earnings or other comprehensive income depending on the intended use
of the derivative instrument. This standard will change the accounting for
our cross-currency and interest rate swaps. In accordance with SFAS No. 133,
we will be required to recognize in net earnings the change in unrealized
gains/losses on the interest rate components of our cross-currency swaps (see
Note 4 of the Notes to the Consolidated Financial Statements). The cumulative
effect for adopting this new accounting standard as of January 1, 2001, will
increase liabilities and decrease shareholders' equity (accumulated other
comprehensive income) by approximately $1 million, representing the fair value
of our outstanding derivative instruments that have not been recorded in the
financial statements at December 31, 2000.
The adoption of SFAS No. 133 will increase volatility in reported net
earnings in the future. If this accounting standard had been in effect on
January 1, 2000, net earnings would have increased by approximately $19
million for the year ended December 31, 2000, related to the change in fair
value of the interest rate components of the cross-currency swaps.
For information regarding other new Statements of Financial Accounting
Standards, see Note 1 of the Notes to the Consolidated Financial Statements.
ANALYSIS OF FINANCIAL CONDITION
BALANCE SHEET
During the last two years, our financial condition has remained strong in
the functional currencies of our operations. The investment portfolios of
AFLAC Japan and AFLAC U.S. have continued to grow and primarily consist of
investment-grade securities.
The yen/dollar exchange rate at the end of each period is used to
translate yen-denominated balance sheet items to U.S. dollars for reporting
purposes. The exchange rate at December 31, 2000, was 114.75 yen to one U.S.
dollar, or 10.8% weaker than the December 31, 1999, exchange rate of 102.40.
The weaker yen rate decreased reported investments and cash by $3.2 billion,
total assets by $3.6 billion and total liabilities by $3.5 billion, compared
with the amounts that would have been reported for 2000 if the exchange rate
EXH 13-15
<PAGE>
had remained unchanged from year-end 1999 (see Note 2 of the Notes to the
Consolidated Financial Statements).
MARKET RISKS OF FINANCIAL INSTRUMENTS
Our financial instruments are exposed primarily to three types of market
risks: interest rate, equity price and foreign currency exchange rate.
INTEREST RATE RISK
Our primary interest rate exposure results from the effect of changes in
interest rates on the fair value of our investments in debt securities. We
use modified duration analysis, which provides a measure of price percentage
volatility, to estimate the amount of sensitivity to interest rate changes in
our debt securities. For example, if the current duration of a debt security
is five, then the fair value of that security will increase by approximately
5% if market interest rates decrease by 100 basis points. Likewise, the fair
value of the debt security will decrease by approximately 5% if market
interest rates increase by 100 basis points.
The estimated effect of potential increases in interest rates on the fair
values of our debt security investments, notes payable and cross-currency
swaps follows:
SENSITIVITY OF FAIR VALUES OF FINANCIAL INSTRUMENTS
TO INTEREST RATE CHANGES
(December 31)
2000 1999
------------------- -------------------
+100 +100
Market Basis Market Basis
(In millions) Value Points Value Points
------------------- -------------------
Debt securities:
Fixed-maturity securities:
Yen-denominated $ 20,615 $ 18,760 $ 20,379 $ 18,613
Dollar-denominated 5,259 4,879 4,760 4,400
Perpetual debentures:
Yen-denominated 5,035 4,550 5,450 4,917
Dollar-denominated 334 313 306 285
------- ------- ------- -------
Total debt securities $ 31,243 $ 28,502 $ 30,895 $ 28,215
======= ======= ======= =======
Notes payable* $ 1,043 $ 1,004 $ 962 $ 934
======= ======= ======= =======
Cross-currency swaps
included in other liabilities $ 30 $ 21 $ 108 $ 91
======= ======= ======= =======
* Excludes capitalized leases
Should significant amounts of unrealized losses occur because of
increases in market yields, we would not expect to realize significant losses
because we have the ability to hold such securities to maturity.
EXH 13-16
<PAGE>
The unrealized gains and losses on debt securities, less amounts
applicable to policy liabilities and deferred income taxes, are reported in
accumulated other comprehensive income. The portion of unrealized gains
credited to policy liabilities represents gains that would not inure to the
benefit of our shareholders if such gains were actually realized. (See Note 3
of the Notes to the Consolidated Financial Statements.)
The following is a comparison of average actuarially assumed interest
rates for policy reserves and investment yields, based on amortized cost, for
the years ended December 31:
COMPARISON OF INTEREST RATES FOR POLICY RESERVES
AND INVESTMENT YIELDS
(Net of investment expenses)
2000 1999 1998
------------ ------------ ------------
U.S. Japan* U.S. Japan* U.S. Japan*
----- ----- ----- ----- ----- -----
Policies issued during year:
Required interest on
policy reserves 6.48% 3.00% 6.59% 3.42% 6.81% 3.50%
New money yield on
investments 8.15 3.51 7.85 4.48 7.62 3.76
Policies in force at end
of year:
Required interest on
policy reserves 6.42 5.21 6.42 5.29 6.41 5.38
Investment yield 7.62 4.65 7.51 4.94 7.44 5.17
*Represents yen-denominated investments for Japan
We attempt to match the duration of our assets with the duration of our
liabilities. For AFLAC Japan, the duration of policy benefit liabilities is
longer than that of the related invested assets due to the unavailability of
acceptable long-duration yen-denominated securities. The average duration of
policy liabilities was approximately 12 years in both 2000 and 1999. The
average duration of the yen-denominated debt securities was approximately 10
years in 2000 and nine years in 1999. Currently, when our debt securities
mature, the proceeds are reinvested at a yield below that of the interest
required for the accretion of policy benefit liabilities on policies issued in
earlier years. However, the investment yield on new investments exceeds
interest requirements on policies issued in recent years. Since 1994, premium
rates on new business have been increased several times (the latest occurred
in July 1999) to help offset the lower investment yields available. Over the
next five years, $3.0 billion at amortized cost (with an average yield of
5.77%), of AFLAC Japan's yen-denominated debt securities are scheduled to
mature.
We have outstanding interest rate swaps on 19.1 billion yen ($167
million) of variable-interest-rate yen-denominated bank borrowings. These
swaps reduce the impact of fluctuations in interest rates on borrowing costs
and effectively change our interest rates from variable to fixed. Therefore,
movements in market interest rates should have no material effect on earnings.
EXH 13-17
<PAGE>
At December 31, 2000, we also had yen-denominated bank borrowings in the
amount of 19.6 billion yen ($171 million) with a blended variable interest
rate of .73%. The effect on net earnings in 2000 due to changes in market
interest rates was immaterial. For further information on our notes payable,
see Note 6 of the Notes to the Consolidated Financial Statements.
EQUITY PRICE RISK
Equity securities at December 31, 2000, totaled $236 million, or .7% of
total investments and cash on a consolidated basis. We use beta analysis to
measure the sensitivity of our equity securities portfolio to fluctuations in
the broad market. The beta of our equity securities portfolio is .92. For
example, if the overall stock market value changed by 10%, the value of
AFLAC's equity securities would be expected to change by approximately 9.2%,
or $22 million.
CURRENCY RISK
Most of AFLAC Japan's investments and cash are denominated in yen. When
yen-denominated financial instruments mature or are sold, the proceeds are
generally reinvested in yen-denominated securities and are held to fund yen-
denominated policy obligations.
In addition to the yen-denominated financial instruments held by AFLAC
Japan, AFLAC Incorporated has yen-denominated notes payable that have been
designated as a hedge of our investment in AFLAC Japan. The unrealized foreign
currency translation gains and losses related to these borrowings are reported
in accumulated other comprehensive income.
AFLAC Incorporated entered into cross-currency swaps to convert the
dollar-denominated principal and interest into yen-denominated obligations on
the $450 million senior notes that were issued in 1999. The cross-currency
swaps have a notional amount of $450 million (55.6 billion yen). These swaps
have also been designated as a hedge of our investment in AFLAC Japan. The
unrealized foreign currency translation gains and losses related to these
swaps are reported in accumulated other comprehensive income. For information
regarding new accounting requirements for derivative instruments as of January
1, 2001, see Accounting Pronouncements Not Yet Adopted on page 13-39.
We attempt to match yen-denominated assets to yen-denominated liabilities
on a consolidated basis in order to minimize the exposure of our shareholders'
equity to foreign currency translation fluctuations. The following table
compares the dollar values of yen-denominated assets and liabilities at
various exchange rates.
EXH 13-18
<PAGE>
DOLLAR VALUE OF YEN-DENOMINATED ASSETS AND LIABILITIES
AT SELECTED EXCHANGE RATES
(December 31)
2000 1999
(In millions) ------------------------- -------------------------
99.75 114.75* 129.75 87.40 102.40* 117.40
Yen Yen Yen Yen Yen Yen
------------------------- -------------------------
Yen-denominated
financial instruments:
Assets:
Securities available
for sale:
Fixed maturities $19,457 $16,913 $14,958 $18,857 $16,099 $14,039
Perpetual debentures 1,969 1,712 1,514 2,015 1,718 1,500
Equity securities 79 68 61 66 56 49
Securities held to
maturity:
Fixed maturities 4,193 3,645 3,223 5,143 4,389 3,829
Perpetual debentures 3,960 3,442 3,044 4,572 3,903 3,404
Cash and cash
equivalents 618 537 475 659 563 491
Other financial
instruments 3 4 3 5 2 2
------ ------ ------ ------ ------ ------
Subtotal 30,279 26,321 23,278 31,317 26,730 23,314
------ ------ ------ ------ ------ ------
Liabilities:
Notes payable 1,139 1,048 980 1,094 999 929
Cross-currency swaps 107 34 (22) 186 93 23
------ ------ ------ ------ ------ ------
Subtotal 1,246 1,082 958 1,280 1,092 952
------ ------ ------ ------ ------ ------
Net yen-denominated
financial instruments 29,033 25,239 22,320 30,037 25,638 22,362
Other yen-denominated
assets 4,118 3,580 3,166 4,412 3,766 3,285
Other yen-denominated
liabilities (32,470) (28,227) (24,962) (34,140) (29,141) (25,417)
------ ------ ------ ------ ------ ------
Consolidated yen-
denominated net
assets subject to
foreign currency
fluctuation $ 681 $ 592 $ 524 $ 309 $ 263 $ 230
====== ====== ====== ====== ====== ======
* Actual year-end rates
For information regarding the effect of foreign currency translation on
operating earnings per share, see Foreign Currency Translation on pages 13-7
through 13-8 and Note 2 of the Notes to the Consolidated Financial Statements.
EXH 13-19
<PAGE>
INVESTMENTS AND CASH
The continued growth in investments and cash reflects the substantial
cash flows from operations. Net unrealized gains of $1.5 billion on
investment securities at December 31, 2000, consisted of $2.6 billion in gross
unrealized gains and $1.1 billion in gross unrealized losses.
AFLAC invests primarily within the Japanese, U.S. and Euroyen debt
securities markets. We are exposed to credit risk in our investment activity.
Credit risk is a consequence of extending credit and/or carrying investment
positions. We require that all securities have an initial rating of Class 1
or 2 as determined by the Securities Valuation Office of the National
Association of Insurance Commissioners. We use specific criteria to judge the
credit quality and liquidity of our investments and use a variety of credit
rating services to monitor these criteria. Applying those various credit
ratings to a standardized rating system based on the categories of a
nationally recognized rating service, the percentages of our debt securities,
at amortized cost, as of December 31 were as follows:
2000 1999
------ ------
AAA 25.0% 28.0%
AA 22.4 24.6
A 36.8 33.5
BBB 15.1 12.1
BB .7 1.8
----- -----
100.0% 100.0%
===== =====
The issuers of two debt securities held in our investment portfolio
experienced significant credit rating downgrades during the first half of
2000. During the second quarter of 2000, we sold one security carried in
the available-for-sale category at a pretax loss of $34 million. We
recorded a pretax impairment loss of $57 million on the other security,
which was carried in the held-to-maturity category. We also reclassified
this security to the available-for-sale category. These losses decreased
net earnings by $58 million ($.11 per basic and diluted share) for the year
ended December 31, 2000.
Private placement investments accounted for 51.5% and 49.0% of our total
debt securities as of December 31, 2000 and 1999, respectively. AFLAC Japan
has made investments in the private placement market to secure higher yields
than those available from Japanese government bonds. At the same time, we
have adhered to prudent standards for credit quality. Most of AFLAC's private
placement issues are issued under medium-term note programs and have standard
covenants commensurate with credit ratings, except when internal credit
analysis indicates that additional protective and/or event-risk covenants are
required.
Securities that are available for sale are reported in the balance sheet
at fair value, and securities that are held to maturity are reported at
amortized cost.
EXH 13-20
<PAGE>
The following table shows an analysis of investment securities (at cost
or amortized cost) at December 31:
AFLAC Japan AFLAC U.S.
------------------- -------------------
(In millions) 2000 1999 2000 1999
------------------- -------------------
Securities available for sale:
Fixed maturities $16,757 $15,491 $ 3,648* $ 3,405*
Perpetual debentures 2,173 2,411 174 153
Equity securities 64 45 97 92
------ ------ ------ ------
Subtotal 18,994 17,947 3,919 3,650
------ ------ ------ ------
Securities held to maturity:
Fixed maturities 3,645 4,389 - -
Perpetual debentures 3,442 3,903 - -
------ ------ ------ ------
Subtotal 7,087 8,292 - -
------ ------ ------ ------
Total investment securities $26,081 $26,239 $ 3,919 $ 3,650
====== ====== ====== ======
*Includes securities held by the parent company of $262 in 2000 and $240
in 1999
Mortgage loans on real estate and other long-term investments remained
immaterial at both December 31, 2000 and 1999. Cash, cash equivalents and
short-term investments totaled $610 million, or 1.9% of total investments and
cash, as of December 31, 2000, compared with $617 million, or 1.9% of total
investments and cash, at December 31, 1999.
For additional information concerning investments and fair values, see
Notes 3 and 4 of the Notes to the Consolidated Financial Statements.
POLICY LIABILITIES
Policy liabilities decreased $1.0 billion, or 3.5%, during 2000. AFLAC
Japan policy liabilities decreased $1.3 billion, or 4.7%, and AFLAC U.S.
policy liabilities increased $252 million, or 10.9%. The decrease in policy
liabilities was primarily due to the weaker yen, partially offset by the aging
of policies in force, the addition of new business and the effect of the
market value adjustment for securities available for sale (see Note 3 of the
Notes to the Consolidated Financial Statements). The weaker yen at year-end
2000 compared with 1999 decreased reported policy liabilities by $3.1 billion.
DEBT
In September 2000, we filed a shelf registration statement with
Japanese regulatory authorities to issue up to 100 billion yen of yen-
denominated Samurai notes. United States residents or entities are not
permitted to purchase or hold these securities. On October 25, 2000, we
issued in Japan 30 billion yen ($278 million) of Samurai notes with a 1.55%
coupon, payable semiannually, due October 25, 2005. These notes are
EXH 13-21
<PAGE>
redeemable at our option at any time with a redemption price equal to the
principal amount of the notes being redeemed plus a premium. We received
net proceeds of 29.9 billion yen ($277 million) after issue costs.
In April 1999, we issued $450 million of senior notes with a 6.50%
coupon, payable semiannually, due April 15, 2009. At December 31, 2000, the
outstanding principal, less unamortized discount, was $449 million. The notes
are redeemable at our option at any time at a redemption price equal to the
principal amount of the notes being redeemed plus a make-whole amount. We
received net proceeds of $446 million after discount and issue costs. A
portion of the proceeds is being used to construct a new administrative office
building in the United States. We entered into cross-currency swaps that have
the effect of converting the dollar-denominated principal and interest into
yen-denominated obligations. The notional amount of the cross-currency swaps
is $450 million (55.6 billion yen) with a blended fixed interest rate of
1.67%. At December 31, 2000, we recorded a liability in the amount of $30
million for the fair value of the swaps.
AFLAC Incorporated has an unsecured reducing revolving credit agreement
that provides for bank borrowings through July 2001 in either U.S. dollars or
Japanese yen. At December 31, 2000, 12.9 billion yen ($113 million) were
outstanding under this agreement.
AFLAC Incorporated also has an unsecured revolving credit agreement that
provides for bank borrowings through November 2002 in either U.S. dollars or
Japanese yen. At December 31, 2000, 25.8 billion yen ($225 million) were
outstanding.
We have entered into interest rate swaps that effectively change the
interest rates on a portion of these bank borrowings from variable to fixed.
We make interest payments to the banks based on variable interest rates, and
we pay to, or receive from, the swap counterparties an amount necessary to
equal the fixed rate.
When any portion of these loans or notes is denominated in yen, the
principal amounts as stated in dollars will fluctuate due to changes in the
yen/dollar exchange rate. We have designated these yen-denominated borrowings
and the cross-currency swaps as a hedge of our net investment in AFLAC Japan.
Foreign currency translation gains/losses are included in accumulated other
comprehensive income. Outstanding principal and related accrued interest
payable on these yen-denominated items are translated into dollars at end-of-
period exchange rates.
The ratio of debt to total capitalization (debt plus shareholders'
equity, excluding the unrealized gains on investment securities) was 25.1% as
of December 31, 2000 and 26.4% as of December 31, 1999. For further
information concerning swaps and notes payable, see Notes 4 and 6 of the Notes
to the Consolidated Financial Statements.
POLICYHOLDER GUARANTY FUNDS
Under insurance guaranty fund laws in most U.S. states, insurance
companies doing business in those states can be assessed for policyholder
losses up to prescribed limits that are incurred by insolvent companies with
similar lines of business. Such assessments have not been material to us in
the past. We believe that future assessments relating to companies in the
EXH 13-22
<PAGE>
United States currently involved in insolvency proceedings will not materially
impact the consolidated financial statements.
In 1998, the Japanese government established the Life Insurance
Policyholders Protection Corporation. Funding by the life insurance industry,
as determined by government legislation, is made over a 10-year period. We
recognize charges for our estimated share of any assessment as funding
legislation is enacted. We periodically review our estimated liability for
policyholder protection fund assessments based on updated information and any
adjustments are reflected in net earnings. For further information regarding
the policyholder protection fund, see Note 2 of the Notes to the Consolidated
Financial Statements.
In October 2000, two Japanese life insurance companies filed
applications with the court for protection under a special reorganization
law for financial institutions. Japanese government officials have
indicated that they do not expect any additional protection fund assessments
to be imposed on the insurance industry for the financial problems of these
insurers.
SHAREHOLDERS' EQUITY
Our insurance operations continue to provide the primary sources of
liquidity. Capital needs are also supplemented by borrowed funds. The
principal sources of cash from insurance operations are premiums and
investment income. The primary uses of cash for insurance operations are
policy claims, commissions, operating expenses, income taxes and payments to
AFLAC Incorporated for management fees and dividends. Both the sources and
uses of cash are reasonably predictable. Our investment objectives provide
for liquidity through the ownership of investment-grade debt securities.
AFLAC insurance policies generally are not interest-sensitive and therefore
are not subject to unexpected policyholder redemptions due to investment yield
changes. Also, the majority of our policies provide indemnity benefits rather
than reimbursement for actual medical costs and therefore are generally not
subject to the risks of medical-cost inflation.
The achievement of continued long-term growth will require growth in
AFLAC's statutory capital and surplus. We may secure additional statutory
capital through various sources, such as internally generated statutory
earnings or equity contributions by AFLAC Incorporated from funds generated
through debt or equity offerings. In October 2000, we received $277 million
from the issuance of Samurai notes in Japan and in April 1999, we received net
proceeds of $446 million from the issuance of senior notes, which increased
our capital resources. We believe outside sources for additional debt and
equity capital, if needed, will continue to be available for capital
expenditures, business expansion and the funding of our share repurchase
program.
AFLAC Incorporated capital resources are largely dependent upon the
ability of AFLAC to pay management fees and dividends. The Georgia insurance
department imposes certain limitations and restrictions on payments of
dividends, management fees, loans and advances by AFLAC to AFLAC Incorporated.
The Georgia insurance statutes require prior approval for dividend
distributions that exceed the greater of statutory earnings for the previous
year, or 10% of statutory capital and surplus as of the previous year-end. In
addition, the Georgia insurance department must approve service arrangements
EXH 13-23
<PAGE>
and other transactions within the affiliated group. These regulatory
limitations are not expected to affect the level of management fees or
dividends paid by AFLAC to AFLAC Incorporated. A life insurance company's
statutory capital and surplus is determined according to rules prescribed by
the National Association of Insurance Commissioners (NAIC), as modified by the
insurance department in the insurance company's state of domicile. Statutory
accounting rules are different from generally accepted accounting principles
and are intended to emphasize policyholder protection and company solvency.
The NAIC has recodified Statutory Accounting Principles (SAP) to promote
standardization throughout the industry. These new accounting principles were
effective January 1, 2001, and are to be applied prospectively. Previously,
prescribed or permitted SAP could vary among states and among companies. The
transition adjustments to adopt the new accounting principles increased
statutory capital and surplus by approximately $130 million as of January 1,
2001.
The NAIC uses a risk-based capital formula relating to insurance risk,
business risk, asset risk and interest rate risk to facilitate identification
by insurance regulators of inadequately capitalized insurance companies based
upon the types and mixtures of risks inherent in the insurer's operations.
AFLAC's NAIC risk-based capital ratio remains high and reflects a very strong
capital and surplus position. Also, there are various ongoing regulatory
initiatives by the NAIC relating to insurance products, investments, revisions
to the risk-based capital formula and other actuarial and accounting matters.
In addition to restrictions by U.S. insurance regulators, the Japanese
FSA may impose restrictions on transfers of funds from AFLAC Japan. Payments
are made from AFLAC Japan to AFLAC Incorporated for management fees and to
AFLAC U.S. for allocated expenses and remittances of earnings. Total funds
received from AFLAC Japan were $199 million in 2000, $282 million in 1999 and
$192 million in 1998. These amounts include annual profit transfers from
AFLAC Japan of $157 million in 2000, $243 million in 1999 and $154 million in
1998. In light of deregulation in the insurance market, we elected to
repatriate less than the maximum amount in 2000 in order to maintain a strong
solvency margin in Japan. In 2000, the maximum amount we could have
repatriated was $351 million. We repatriated the maximum amounts in 1999 and
1998. The FSA may not allow transfers of funds if the payment would cause
AFLAC Japan to lack sufficient financial strength for the protection of
policyholders. The FSA maintains its own solvency standards, a version of
risk-based capital requirements. AFLAC Japan's solvency margin significantly
exceeds regulatory minimums. The FSA is also in the process of modifying the
solvency margin used by regulators in Japan to monitor the financial strength
of insurance companies. For additional information on regulatory restrictions
on dividends, profit transfers and other remittances, see Note 9 of the Notes
to the Consolidated Financial Statements.
For the Japanese reporting fiscal year ending March 31, 2002, AFLAC Japan
will be required to adopt a new Japanese statutory accounting standard
regarding fair value accounting for investments. Currently, debt securities
are recorded at amortized cost for FSA purposes. Under the new accounting
standard AFLAC Japan will be required to record debt securities in four
categories: at fair value in an available-for-sale category, at amortized cost
in a held-to-maturity category, at amortized cost in a special category for
securities held for long-term holding purposes, or at fair value in a trading
category.
EXH 13-24
<PAGE>
Under this new regulatory accounting standard, the unrealized gains and
losses on debt securities available for sale will be reported in FSA capital
and surplus. This new accounting method may result in significant
fluctuations in FSA equity, in the AFLAC Japan solvency margin and in amounts
available for annual profit repatriation.
RATING AGENCIES
AFLAC is rated `AA' by both Standard & Poor's and Fitch IBCA, Duff &
Phelps, and `Aa3' by Moody's for financial strength. A.M. Best assigned AFLAC
an `A+, superior' rating for financial strength and operating performance.
AFLAC Incorporated's credit rating for senior debt is `A' by both Standard &
Poor's and Fitch IBCA, Duff & Phelps, and `A2' by Moody's.
OTHER
AFLAC Japan is developing a new computerized policy administration system
at an estimated cost of approximately $150 million. The project is scheduled
to be completed in 2002. The project will be financed with operating cash
flow.
For information regarding pending litigation, see Note 11 of the Notes to
the Consolidated Financial Statements.
CASH FLOW
Operating cash flows for AFLAC Japan's yen-denominated items are
translated into dollars using average monthly exchange rates for the year. In
years when the yen weakens, translating yen into dollars causes fewer dollars
to be reported. When the yen strengthens, translating yen into dollars causes
more dollars to be reported.
For additional information, see the Consolidated Statements of Cash Flows
on pages 13-32 and 13-33.
OPERATING ACTIVITIES
In 2000 consolidated cash flow from operations increased 16.9% to $3.3
billion, compared with $2.8 billion in 1999 and $2.5 billion in 1998. Net
cash flow from operations for AFLAC Japan increased 18.7% (increased 18.0% in
yen) to $2.9 billion in 2000, compared with $2.5 billion in 1999 and $2.2
billion in 1998. AFLAC Japan represented 89% of the consolidated net cash
flow from operations in 2000, 88% in 1999 and 89% in 1998.
INVESTING ACTIVITIES
Consolidated cash flow used by investing activities increased 11.7% to
$3.1 billion in 2000, compared with $2.7 billion in 1999 and $2.2 billion in
1998. AFLAC Japan accounted for 90% of the consolidated net cash used by
investing activities in 2000, compared with 74% in 1999 and 86% in 1998.
EXH 13-25
<PAGE>
Operating cash flow is primarily used to purchase debt securities. When
market opportunities arise, we dispose of selected debt securities available
for sale to improve future investment yields or lengthen maturities.
Therefore, dispositions before maturity can vary significantly from year to
year. Dispositions before maturity ranged between 3% and 5% of the annual
average investment portfolio of debt securities available for sale during the
three years ended December 31, 2000.
FINANCING ACTIVITIES
In 2000 net cash used by financing activities was $168 million, compared
with net cash provided by financing activities of $113 million in 1999 and net
cash used by financing activities of $151 million in 1998. In 2000, we
received net proceeds of $277 million in connection with the issuance in Japan
of 1.55% Samurai bonds due in 2005. In 1999, we received net proceeds of $446
million in connection with the issuance of 6.50% senior notes due in 2009.
Treasury stock purchases of $239 million, $224 million and $125 million were
made in 2000, 1999 and 1998, respectively.
Dividends to shareholders in 2000 were $87 million ($82 million paid in
cash; $5 million through issuance of treasury shares under the dividend
reinvestment plan). Dividends to shareholders in 1999 were $77 million ($72
million paid in cash; $5 million through issuance of treasury shares under the
dividend reinvestment plan). Dividends to shareholders in 1998 were $67
million ($63 million paid in cash; $4 million through issuance of treasury
shares under the dividend reinvestment plan). The 2000 dividend of $.167 per
share increased 13.6% over 1999. The 1999 dividend of $.147 per share
represented an increase of 14.8% over the 1998 dividend of $.128 per share.
We issued treasury shares for certain AFLAC stock options, the AFL
Stock Plan and the AFLAC Associate Stock Bonus Plan (see Note 10 of the
Notes to the Consolidated Financial Statements).
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" to encourage companies to provide prospective information, 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 discussed. We
desire to take advantage of these provisions. This report contains cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in this discussion and analysis, and in
any other statements made by company officials in oral discussions 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. In particular, statements containing words
such as "expect," "anticipate," "believe," "goal," "objective," 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 in our reports filed with the SEC, could
EXH 13-26
<PAGE>
cause actual results to differ materially: regulatory developments,
assessments for insurance company insolvencies, competitive conditions, new
products, ability to repatriate profits from Japan, general economic
conditions in the United States and Japan, changes in U.S. and/or Japanese tax
laws or accounting requirements, adequacy of reserves, credit and other risks
associated with AFLAC's investment activities, significant changes in interest
rates, and fluctuations in foreign currency exchange rates.
EXH 13-27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31,
(In millions, except for share 2000 1999 1998
and per-share amounts) -------- -------- --------
Revenues:
Premiums, principally supplemental
health insurance $ 8,239 $ 7,264 $ 5,943
Net investment income 1,550 1,369 1,138
Realized investment losses (102) (13) (2)
Other income 33 20 25
------- ------- -------
Total revenues 9,720 8,640 7,104
------- ------- -------
Benefits and expenses:
Benefits and claims 6,618 5,885 4,877
Acquisition and operating expenses:
Amortization of deferred policy
acquisition costs 302 257 201
Insurance commissions 1,040 931 773
Insurance expenses 758 641 504
Release of retirement liability (101) - -
Provision for policyholder
protection fund - 64 111
Interest expense 19 18 13
Other operating expenses 72 66 74
------- ------- -------
Total acquisition and
operating expenses 2,090 1,977 1,676
------- ------- -------
Total benefits and expenses 8,708 7,862 6,553
------- ------- -------
Earnings before income taxes 1,012 778 551
------- ------- -------
Income tax expense (benefit):
Current 338 230 277
Deferred - operations (13) 44 (92)
Deferred tax benefit from
Japanese tax rate reductions - (67) (121)
------- ------- -------
Total income taxes 325 207 64
------- ------- -------
Net earnings $ 687 $ 571 $ 487
======= ======= =======
Net earnings per share:
Basic $ 1.30 $ 1.07 $ .91
Diluted 1.26 1.04 .88
======= ======= =======
Common shares used in computing
earnings per share (In thousands):
Basic 530,607 531,737 532,609
Diluted 544,906 550,845 551,745
======= ======= =======
See the accompanying Notes to the Consolidated Financial Statements.
Share and per-share amounts have been adjusted to reflect the two-for-one
stock split payable on March 16, 2001.
EXH 13-28
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In millions) 2000 1999
-------- --------
ASSETS:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost
$20,405 in 2000 and $18,896 in 1999) $ 22,172 $ 20,859
Perpetual debentures (amortized cost
$2,347 in 2000 and $2,564 in 1999) 2,046 2,024
Equity securities (cost $161 in 2000
and $137 in 1999) 236 215
Securities held to maturity, at amortized cost:
Fixed maturities (fair value $3,702 in
2000 and $4,280 in 1999) 3,645 4,389
Perpetual debentures (fair value $3,323 in
2000 and $3,732 in 1999) 3,442 3,903
Other investments 17 18
Cash and cash equivalents 609 616
-------- --------
Total investments and cash 32,167 32,024
Receivables, primarily premiums 301 270
Accrued investment income 380 369
Deferred policy acquisition costs 3,685 3,692
Property and equipment, at cost less
accumulated depreciation 481 509
Other 218 177
-------- --------
Total assets $ 37,232 $ 37,041
======== ========
See the accompanying Notes to the Consolidated Financial Statements.
(continued)
EXH 13-29
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
December 31,
(In millions, except for share amounts) 2000 1999
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities:
Future policy benefits $ 26,114 $ 27,310
Unpaid policy claims 1,745 1,618
Unearned premiums 361 361
Other policyholders' funds 346 315
-------- --------
Total policy liabilities 28,566 29,604
Notes payable 1,079 1,018
Income taxes 1,894 1,511
Payables for return of cash collateral
on loaned securities 127 -
Other 872 1,040
Commitments and contingencies
(Notes 10 and 11)
-------- --------
Total liabilities 32,538 33,173
-------- --------
Shareholders' equity:
Common stock of $.10 par value. In thousands:
authorized 1,000,000 shares; issued 644,813
shares in 2000 and 640,698 shares in 1999 32 32
Additional paid-in capital 336 310
Retained earnings 3,956 3,356
Accumulated other comprehensive income:
Unrealized foreign currency translation gains 194 232
Unrealized gains on investment securities 1,474 1,032
Treasury stock, at average cost (1,298) (1,094)
-------- --------
Total shareholders' equity 4,694 3,868
-------- --------
Total liabilities and
shareholders' equity $ 37,232 $ 37,041
======== ========
See the accompanying Notes to the Consolidated Financial Statements.
Share amounts have been adjusted to reflect the two-for-one stock split
payable on March 16, 2001.
EXH 13-30
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31,
(In millions, except for 2000 1999 1998
per-share amounts) -------- -------- --------
Common stock:
Balance at beginning of year $ 32 $ 32 $ 16
Two-for-one stock split - - 16
------- ------- -------
Balance at end of year 32 32 32
------- ------- -------
Additional paid-in capital:
Balance at beginning of year 310 235 227
Exercise of stock options 18 17 8
Gain on treasury stock reissued 8 58 16
Two-for-one stock split - - (16)
------- ------- -------
Balance at end of year 336 310 235
------- ------- -------
Retained earnings:
Balance at beginning of year 3,356 2,862 2,442
Net earnings 687 571 487
Dividends to shareholders ($.167 per
share in 2000, $.147 in 1999 and
$.128 in 1998) (87) (77) (67)
------- ------- -------
Balance at end of year 3,956 3,356 2,862
------- ------- -------
Accumulated other comprehensive income:
Balance at beginning of year 1,264 1,551 1,559
Change in unrealized foreign
currency translation gains (losses)
during year, net of income taxes (38) 13 (55)
Change in unrealized gains (losses)
on investment securities during
year, net of income taxes 442 (300) 47
------- ------- -------
Balance at end of year 1,668 1,264 1,551
------- ------- -------
Treasury stock:
Balance at beginning of year (1,094) (910) (814)
Purchases of treasury stock (239) (224) (125)
Cost of shares issued 35 40 29
------- ------- -------
Balance at end of year (1,298) (1,094) (910)
------- ------- -------
Total shareholders' equity $ 4,694 $ 3,868 $ 3,770
======= ======= =======
See the accompanying Notes to the Consolidated Financial Statements.
Per-share amounts have been adjusted to reflect the two-for-one stock split
payable on March 16, 2001.
EXH 13-31
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(In millions) 2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net earnings $ 687 $ 571 $ 487
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Increase in policy liabilities 2,737 2,570 2,173
Deferred income taxes (13) (23) (213)
Change in income taxes payable 477 (364) 16
Increase in deferred policy
acquisition costs (310) (299) (226)
Realized investment losses 102 13 2
Release of retirement liability (101) - -
Provision for policyholder
protection fund - 64 111
Other, net (296) 275 150
-------- -------- --------
Net cash provided by
operating activities 3,283 2,807 2,500
-------- -------- --------
Cash flows from investing activities:
Proceeds from investments sold
or matured:
Securities available for sale:
Fixed maturities sold 795 1,071 1,002
Fixed maturities matured 454 404 637
Perpetual debentures sold - 14 -
Equity securities 35 73 57
Securities held to maturity:
Fixed maturities matured or called 18 23 8
Other investments, net (2) 17 42
Costs of investments acquired:
Securities available for sale:
Fixed maturities (4,360) (3,322) (2,966)
Perpetual debentures (26) (862) (917)
Equity securities (67) (82) (60)
Securities held to maturity:
Fixed maturities - (43) -
Cash received as collateral on
loaned securities, net 127 - -
Additions to property and
equipment, net (26) (14) (40)
Other, net (7) (17) (8)
-------- -------- --------
Net cash used by investing
activities $ (3,059) $ (2,738) $ (2,245)
-------- -------- --------
See the accompanying Notes to the Consolidated Financial Statements.
(continued)
EXH 13-32
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Years Ended December 31,
(In millions) 2000 1999 1998
-------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings $ 294 $ 446 $ 124
Principal payments under debt
obligations (187) (94) (125)
Dividends paid to shareholders (82) (72) (63)
Purchases of treasury stock (239) (224) (125)
Treasury stock reissued 31 39 30
Other, net 15 18 8
-------- -------- --------
Net cash provided (used) by
financing activities (168) 113 (151)
-------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents (63) 60 34
-------- -------- --------
Net change in cash and
cash equivalents (7) 242 138
Cash and cash equivalents,
beginning of year 616 374 236
-------- -------- --------
Cash and cash equivalents,
end of year $ 609 $ 616 $ 374
======== ======== ========
Supplemental disclosures of cash
flow information - See Note 12
See the accompanying Notes to the Consolidated Financial Statements.
EXH 13-33
<PAGE>
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31,
(In millions) 2000 1999 1998
-------- -------- --------
Net earnings $ 687 $ 571 $ 487
-------- -------- --------
Other comprehensive income, before
income taxes:
Foreign currency translation
adjustments:
Change in unrealized foreign
currency translation gains
(losses) during year 97 (128) (84)
Unrealized gains (losses) on
investment securities:
Unrealized holding gains (losses)
arising during year 521 (379) 171
Reclassification adjustment for
realized (gains) losses included
in net earnings 101 13 3
-------- -------- --------
Total other comprehensive income
(loss), before income taxes 719 (494) 90
Income tax expense (benefit)
related to items of other
comprehensive income 315 (207) 98
-------- -------- --------
Other comprehensive income
(loss), net of income taxes 404 (287) (8)
-------- -------- --------
Total comprehensive income $ 1,091 $ 284 $ 479
======== ======== ========
See the accompanying Notes to the Consolidated Financial Statements.
EXH 13-34
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS: AFLAC Incorporated (the Parent Company) and its
subsidiaries (the Company) primarily sell supplemental health and life
insurance in Japan and the United States. The Company's insurance operations
are conducted through American Family Life Assurance Company of Columbus
(AFLAC), which operates in the United States (AFLAC U.S.) and as a branch in
Japan (AFLAC Japan). Most of our insurance policies are individually
underwritten and marketed at worksites through independent agents, with
premiums paid by the employee. AFLAC Japan, which conducts its insurance
operations in Japanese yen, accounted for 81% of the Company's total revenues
for both 2000 and 1999, and 80% in 1998, and 86% and 87% of total assets at
December 31, 2000 and 1999, respectively.
BASIS OF PRESENTATION: We prepare our financial statements in accordance
with generally accepted accounting principles (GAAP). These principles are
established primarily by the Financial Accounting Standards Board (FASB) and
the American Institute of Certified Public Accountants. The preparation of
financial statements in conformity with GAAP requires us to make estimates
when recording transactions resulting from business operations, based on
information currently available. The most significant items on our balance
sheet that involve a greater degree of accounting estimates and actuarial
determinations subject to changes in the future are: deferred policy
acquisition costs and liabilities for future policy benefits and unpaid policy
claims. As additional information becomes available (or actual amounts are
determinable), the recorded estimates will be revised and reflected in
operating results. Although some variability is inherent in these estimates,
we believe the amounts provided are adequate.
TRANSLATION OF FOREIGN CURRENCIES: The functional currency of AFLAC
Japan's insurance operations is the Japanese yen. We translate financial
statement accounts that are maintained in foreign currencies into U.S. dollars
as follows. Assets and liabilities denominated in foreign currencies are
translated at end-of-period exchange rates. Realized gains and losses on
security transactions are translated at the exchange rate on the trade date of
each transaction. Other revenues, expenses and cash flows are translated
using average exchange rates for the year. The resulting currency translation
adjustments are reported in accumulated other comprehensive income. We
include in earnings realized currency exchange gains and losses resulting from
transactions. Realized currency exchange gains and losses were immaterial
during the three-year period 1998 through 2000.
AFLAC Japan maintains an investment portfolio of dollar-denominated
securities on behalf of AFLAC U.S. The functional currency for these
investments is the dollar. The related investment income and
realized/unrealized investment gains and losses are also denominated in
dollars.
We have designated the cross-currency swaps and the yen-denominated notes
payable (Note 6) held by the Parent Company as a hedge of our net investment
in AFLAC Japan. Outstanding principal and related accrued interest payable on
these items are translated into dollars at end-of-period exchange rates.
Currency translation adjustments are reported in accumulated other
comprehensive income.
EXH 13-35
<PAGE>
INSURANCE REVENUE AND EXPENSE RECOGNITION: The supplemental health and
life insurance policies we issue are classified as long-duration contracts.
The contract provisions generally cannot be changed or canceled during the
contract period; however, we may adjust premiums for supplemental health
policies issued in the United States within prescribed guidelines and with the
approval of state insurance regulatory authorities.
Insurance premiums for health and life policies are recognized as earned
income ratably over the premium payment periods of the policies. When
revenues are recorded, the related amounts of benefits and expenses are
charged against such revenues, so as to result in recognition of profits in
proportion to premium revenues during the period the policies are expected to
remain in force. This association is accomplished by means of annual
additions to the liability for future policy benefits and the deferral and
subsequent amortization of policy acquisition costs.
The calculation of deferred policy acquisition costs and the liability
for future policy benefits requires the use of estimates consistent with sound
actuarial valuation techniques. For new policy issues, we review our
actuarial assumptions and deferrable acquisition costs each year and revise
them when necessary to more closely reflect recent experience and studies of
actual acquisition costs. For policies in force, we evaluate deferred policy
acquisition costs by major product groupings to determine that they are
recoverable from future revenues. We charge against earnings costs that are
not recoverable.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash on
hand, money market instruments and other debt instruments with a maturity of
90 days or less when purchased.
INVESTMENTS: Our fixed-maturity securities and perpetual debentures
(debt securities) are classified as either held to maturity or available for
sale. Securities classified as held to maturity are securities that we have
the ability and intent to hold to maturity or redemption and are carried at
amortized cost. All other debt securities and our equity securities are
classified as available for sale and are carried at fair value. If the fair
value is higher than the amortized cost for debt securities or the purchase
cost for equity securities, the excess is an unrealized gain; and if lower
than cost, the difference is an unrealized loss.
During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain private placement debt
securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. In 1998, we made this our formal
policy. Accordingly, certain debt securities were reclassified from the
available-for-sale category to the held-to-maturity category. The related
unrealized gain on these securities is being amortized from other
comprehensive income into investment income over the remaining term of the
securities. The related premium in the carrying value of the debt securities
that was created when the reclassification occurred is also being amortized as
an offsetting charge to investment income.
These unamortized unrealized gains and losses, plus the net unrealized
gains and losses on securities available for sale, less amounts applicable to
policy liabilities and deferred income taxes, are reported in accumulated
other comprehensive income. The portion of unrealized gains credited to
policy liabilities represents gains that would not inure to the benefit of
EXH 13-36
<PAGE>
shareholders if such gains were actually realized. These amounts relate to
policy reserve interest requirements and reflect the difference between market
investment yields and estimated minimum required interest rates on policy
reserves.
Amortized cost of debt securities is based on our purchase price adjusted
for accrual of discount or amortization of premium. The amortized cost of
debt securities we purchased at a discount will equal the face or par value at
maturity. Debt securities we purchased at a premium will have an amortized
cost equal to face or par value at the earlier of a call date or maturity.
Interest is recorded as income when earned and is adjusted for
amortization of any premium or discount. Dividends on equity securities are
recorded as income on the ex-dividend dates.
For the collateralized mortgage obligations held in our fixed-maturity
securities portfolio, we recognize income using a constant effective yield
based on anticipated prepayments and the estimated economic life of the
securities. When estimates of prepayments change, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the amount that
would have existed had the new effective yield been applied at the time of
acquisition. This adjustment is reflected in net investment income.
We identify the cost of each individual investment so that when any are
sold, we are able to record the gain or loss on that transaction in the
consolidated statements of earnings.
We continually monitor the difference between the cost and estimated fair
value of our investments. If any investments experience a decline in value
that is deemed to be other than temporary, we write the security down to fair
value and record a realized loss in the consolidated statements of earnings.
We lend fixed-maturity securities to financial institutions in short-term
security lending transactions. These securities continue to be carried as
investment assets on our balance sheet during the term of the loans and are
not recorded as sales. We receive cash or other securities as collateral for
such loans. For loans involving unrestricted cash collateral, the collateral
is recorded as an asset with a corresponding liability for the return of the
collateral. For loans collateralized by securities, the collateral is not
recorded as an asset or liability.
DEFERRED POLICY ACQUISITION COSTS: The costs of acquiring new business
and converting existing policies are deferred and amortized, with interest,
over the premium payment periods in proportion to the ratio of annual premium
income to total anticipated premium income. Anticipated premium income is
estimated by using the same mortality and withdrawal assumptions used in
computing liabilities for future policy benefits. In this manner, the related
acquisition expenses are matched with revenues. Costs deferred include first-
year commissions in excess of renewal-year commissions and certain direct and
allocated policy issue, underwriting and marketing expenses. All of these
costs vary with and are primarily related to the production of new business.
INSURANCE LIABILITIES: The liabilities for future policy benefits are
computed by a net level premium method using estimated future investment
yields, withdrawals and recognized morbidity and mortality tables modified to
reflect our experience, with reasonable provisions for possible future adverse
deviation in experience.
EXH 13-37
<PAGE>
Unpaid policy claims are estimates computed on an undiscounted basis
using statistical analyses of historical claim experience adjusted for current
trends and changed conditions. The ultimate liability may vary significantly
from such estimates. We regularly adjust these estimates as new claims
experience emerges and reflect the changes in operating results in the year
such adjustments are made.
INCOME TAXES: Income tax provisions are generally based on pretax
earnings reported for financial statement purposes, which differ from those
amounts used in preparing our income tax returns. Deferred income taxes are
recognized for temporary differences between the financial reporting basis and
income tax basis of assets and liabilities, based on enacted tax laws and
statutory tax rates applicable to the periods in which we expect the temporary
differences to reverse.
DERIVATIVES: We have only limited activity with derivative financial
instruments. We do not use them for trading purposes nor do we engage in
leveraged derivative transactions. We currently use three types of
derivatives: interest rate swaps, cross-currency swaps and foreign currency
forward contracts.
We use the accrual method to account for the interest rate swaps in
connection with our bank borrowings. The difference between amounts paid and
received under such agreements is reported in interest expense in the
consolidated statements of earnings. Changes in the fair value of these swap
agreements are not recognized in the financial statements. These swaps reduce
the impact of changes in interest rates on our borrowing costs and effectively
change our related interest exposure from variable to fixed.
We use cross-currency swaps in connection with our $450 million senior
notes, which in effect convert the dollar-denominated principal and interest
into yen-denominated obligations. These swaps have been designated as hedges
of our investment in AFLAC Japan. The cross-currency swaps are recorded in
other liabilities. Changes in the fair value of the currency portion of the
swaps are recorded in accumulated other comprehensive income. The interest
portions, not related to the accrued interest, of the currency swaps are not
reflected in the financial statements.
We occasionally use short-term foreign currency forward contracts in
connection with annual profit transfers from AFLAC Japan. These contracts are
designated at inception as hedges of our investment in AFLAC Japan and are
accounted for using the deferral method. We record the gains and losses
during the period that the contracts are outstanding as unrealized foreign
currency translation adjustments in accumulated other comprehensive income.
Effective January 1, 2001, we will be required to account for these
derivatives using new accounting principles. See the section in this note
titled, Accounting Pronouncements Not Yet Adopted.
JAPANESE POLICYHOLDER PROTECTION FUND: In 1998, the Japanese government
established the Life Insurance Policyholders Protection Corporation. Funding
by the life insurance industry, as determined by government legislation, is
made over a 10-year period. We recognize charges for our estimated share of
any assessment as funding legislation is enacted. We review our estimated
liability for policyholder protection fund assessments based on updated
information and any adjustments are reported in net earnings.
EXH 13-38
<PAGE>
EMPLOYEE STOCK OPTIONS: We use the intrinsic value method to value
employee stock options. Under this method, compensation cost is recognized
only for the excess, if any, of the market price of the stock at the grant
date over the amount an employee must pay upon exercise to acquire the stock.
Our stock option plan requires that the exercise price be equal to the fair
market value at the date of grant. Therefore, we do not recognize
compensation expense related to stock options.
TREASURY SHARES: We record treasury shares purchased at cost, which is
the market value at the time of the transaction, and as a reduction of
shareholders' equity. We use the weighted-average purchase cost to determine
the cost of treasury shares that are reissued. We record realized gains and
losses in additional paid-in capital when treasury shares are reissued.
EARNINGS PER SHARE: We present two earnings per share (EPS)
calculations: basic EPS and diluted EPS. Basic EPS is computed by dividing
net earnings by the weighted-average number of shares outstanding for the
period. Diluted EPS is computed by dividing net earnings by the weighted-
average number of shares outstanding for the period plus the shares
representing the dilutive effect of stock options and other common stock
equivalents.
All share and per-share amounts have been adjusted to reflect the two-
for-one stock split declared by the board of directors on February 13, 2001,
payable on March 16, 2001.
ACCOUNTING CHANGES ADOPTED: We adopted Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, on January 1, 1999. This SOP provides guidance for determining
whether costs of software developed or obtained for internal use should be
capitalized or expensed as incurred. In the past, we expensed all such costs
as they were incurred. We capitalized $22 million and $9 million for the
years ended December 31, 2000 and 1999, respectively.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED: We will adopt Statement of
Financial Accounting Standards (SFAS) No. 133 as amended, Accounting for
Derivative Instruments and Hedging Activities, on January 1, 2001. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in investment
securities and other contracts, and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative will be included in either earnings
or other comprehensive income depending on the intended use of the derivative
instrument. This standard will change the accounting for our cross-currency
and interest rate swaps. In accordance with SFAS No. 133, we will be required
to recognize in net earnings the change in unrealized gains/losses on the
interest rate components of our cross-currency swaps (see Note 4). The
cumulative effect for adopting this new accounting standard as of January 1,
2001 will increase liabilities and decrease shareholders' equity (accumulated
other comprehensive income) by approximately $1 million, representing the fair
value of our outstanding derivative instruments that have not been recorded in
the financial statements at December 31, 2000.
The adoption of SFAS No. 133 will increase volatility in reported net
earnings in the future. If this accounting standard had been in effect on
January 1, 2000, net earnings would have increased by approximately
EXH 13-39
<PAGE>
$19 million for the year ended December 31, 2000 related to the change in fair
value of the interest rate components of the cross-currency swaps.
In September 2000, the FASB issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities, which replaces SFAS No. 125. SFAS No. 140 revises the standards
for accounting and reporting for transfers and servicing of financial assets
and extinguishments of liabilities. SFAS No. 140 is effective for transfers
occurring after March 31, 2001. The adoption of SFAS No. 140 is not expected
to have any impact on the Company's financial position or results of
operations.
RECLASSIFICATIONS: Certain prior-year amounts have been reclassified to
conform to the current-year presentation.
(2) FOREIGN INFORMATION AND BUSINESS SEGMENT INFORMATION
The Company consists of two reportable business segments: AFLAC Japan
insurance and AFLAC U.S. insurance. We sell supplemental health and life
insurance through our AFLAC Japan and AFLAC U.S. operations. Most of our
policies are individually underwritten and marketed at worksites through
independent agents, with premiums paid by the employee.
Operating business segments that are not individually reportable are
included in the "Other" category, which includes minor insurance operations in
foreign countries other than Japan and our printing subsidiary.
We evaluate our business segments based on GAAP pretax operating
earnings. We do not allocate corporate overhead expenses to business
segments.
EXH 13-40
<PAGE>
Information regarding components of operations and lines of business for
the years ended December 31 follows:
(In millions) 2000 1999 1998
-------- -------- --------
Revenues:
AFLAC Japan:
Earned premiums:
Cancer life $ 4,976 $ 4,582 $ 3,839
Other accident and health 1,037 730 413
Life insurance and annuities 671 594 486
Net investment income 1,261 1,111 917
Other income 7 4 2
------- ------- -------
Total AFLAC Japan revenues 7,952 7,021 5,657
------- ------- -------
AFLAC U.S.:
Earned premiums:
Cancer expense 585 535 489
Accident/disability 565 447 345
Other health 360 344 341
Life insurance 44 32 23
Net investment income 277 245 216
Other income 5 3 4
------- ------- -------
Total AFLAC U.S. revenues 1,836 1,606 1,418
------- ------- -------
Other business segments 31 23 39
------- ------- -------
Total business segments 9,819 8,650 7,114
Realized investment losses (102) (13) (2)
Corporate* 32 39 30
Intercompany eliminations (29) (36) (38)
------- ------- -------
Total revenues $ 9,720 $ 8,640 $ 7,104
======= ======= =======
*Includes investment income of $12 in 2000, $13 in 1999 and $2 in 1998
EXH 13-41
<PAGE>
(In millions) 2000 1999 1998
-------- -------- --------
Earnings before income taxes:
AFLAC Japan $ 771 $ 651 $ 502
AFLAC U.S. 290 256 230
Other business segments (6) (4) 2
------- ------- -------
Total business segments 1,055 903 734
Release of retirement liability 101 - -
Provision for the policyholder
protection fund - (64) (111)
Realized investment losses (102) (13) (2)
Interest expense, noninsurance
operations (16) (15) (10)
Corporate* (26) (33) (60)
------- ------- -------
Total earnings before
income taxes $ 1,012 $ 778 $ 551
======= ======= =======
*Includes investment income of $12 in 2000, $13 in 1999 and $2 in 1998
(In millions) 2000 1999 1998
-------- -------- --------
Advertising expense:
AFLAC Japan $ 62 $ 46 $ 21
AFLAC U.S. 38 33 34
------- ------- -------
Total advertising expense $ 100 $ 79 $ 55
======= ======= =======
Assets at December 31 were as follows:
(In millions) 2000 1999
-------- --------
Assets:
AFLAC Japan $ 31,882 $ 32,274
AFLAC U.S. 4,964 4,448
Other business segments 46 34
-------- --------
Total business segments 36,892 36,756
Corporate 5,993 5,213
Intercompany eliminations (5,653) (4,928)
-------- --------
Total assets $ 37,232 $ 37,041
======== ========
Total depreciation and amortization expense was $33 million in both 2000
and 1999, and $29 million in 1998. AFLAC Japan accounted for $20 million in
both 2000 and 1999, and $17 million in 1998.
Advertising and depreciation expenses are included in insurance expenses.
EXH 13-42
<PAGE>
Total expenditures for property and equipment were $26 million in 2000,
$22 million in 1999 and $47 million in 1998. The 1998 expenditures primarily
related to the construction of an administrative office building for AFLAC
U.S.
Receivables consisted primarily of monthly insurance premiums due from
individual policyholders or their employers for payroll deduction of premiums.
At December 31, 2000, $150 million, or 49.8% of total receivables were related
to AFLAC Japan's operations ($157 million, or 57.9%, at December 31, 1999).
POLICYHOLDER PROTECTION FUND: In 1998, the Japanese government created a
policyholder protection system, and subsequently established the Life
Insurance Policyholders Protection Corporation. The life insurance industry
is required to contribute to this fund semiannually over a 10-year period. We
recognized a pretax charge of $111 million in the first quarter of 1998 for
our share of the life insurance industry's obligation to the fund. The after-
tax amount was $65 million, or $.12 per basic and diluted share.
In 1999, the Japanese government and the life insurance industry agreed
to legislation that increased the life insurance industry's legal obligation
to the fund. Our share of this additional obligation was recognized in the
fourth quarter of 1999 and decreased pretax earnings by $64 million ($41
million after taxes, or $.08 per basic share and $.07 per diluted share).
The total liability accrued for our remaining obligations to the Japanese
policyholder protection fund was $227 million and $262 million at December 31,
2000 and 1999, respectively.
In October 2000, two Japanese life insurance companies filed applications
with the court for protection under a special reorganization law for financial
institutions. Japanese government officials have indicated that they do not
expect any additional protection fund assessments to be imposed on the
insurance industry for the financial problems of these insurers.
YEN-TRANSLATION EFFECTS: AFLAC Japan owns U.S. dollar-denominated
securities, which serve as an economic currency hedge of a portion of our
investment in AFLAC Japan. We have designated the Parent Company's yen-
denominated notes payable and cross-currency swaps (Note 6) as a hedge of our
investment in AFLAC Japan. The dollar values of our yen-denominated net
assets subject to foreign currency translation fluctuations for financial
reporting purposes are summarized as follows at December 31 (translated at
end-of-year exchange rates):
(In millions) 2000 1999
-------- --------
AFLAC Japan net assets $ 3,648 $ 3,129
Less:
AFLAC Japan dollar-denominated
net assets 1,969 1,772
Parent Company yen-denominated
net liabilities 1,087 1,094
------- -------
Consolidated yen-denominated net assets
subject to foreign currency
translation fluctuations $ 592 $ 263
======= =======
EXH 13-43
<PAGE>
The following table shows the yen/dollar exchange rates used for the
three-year period ended December 31, 2000, and their effect on selected
financial data.
2000 1999 1998
------ ------ ------
Balance Sheets:
Yen/dollar exchange rate at
December 31 114.75 102.40 115.70
Yen percent weakening (strengthening) 10.8% (13.0)% (12.4)%
Exchange effect on total assets (billions)* $ (3.6) $ 3.5 $ 2.8
Exchange effect on total
liabilities (billions)* $ (3.5) $ 3.5 $ 2.7
Statements of Earnings:
Average exchange rate for the year 107.83 113.96 130.89
Yen percent weakening (strengthening) (5.7)% (14.9)% 7.5%
Exchange effect on net earnings (millions)* $ 11 $ 54 $ (20)
Exchange effect on diluted net EPS* $ .02 $ .10 $ (.04)
*Exchange effect amounts were determined using the same yen/dollar exchange
rate for the current year as each respective prior year.
OTHER: Payments are made from AFLAC Japan to the Parent Company for
management fees and to AFLAC U.S. for allocated expenses and remittances of
earnings. These payments totaled $199 million in 2000, $282 million in 1999
and $192 million in 1998. See Note 9 for information concerning restrictions
on remittances from AFLAC Japan.
EXH 13-44
<PAGE>
(3) INVESTMENTS
The amortized cost for debt securities, cost for equity securities and
the fair values of these investments at December 31 are shown in the following
tables:
December 31, 2000
--------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities available for sale,
carried at fair value:
Fixed maturities:
Yen-denominated:
Government and guaranteed $ 6,554 $ 1,722 $ 52 $ 8,224
Municipalities 342 28 - 370
Public utilities 3,572 337 28 3,881
Sovereign and supranational 56 2 - 58
Banks/financial institutions 3,045 45 180 2,910
Other corporate 1,471 40 41 1,470
------- ------- ------- -------
Total yen-denominated 15,040 2,174 301 16,913
------- ------- ------- -------
Dollar-denominated:
Government 260 7 1 266
Municipalities 41 2 - 43
Mortgage-backed securities 429 9 - 438
Public utilities 325 4 13 316
Sovereign and supranational 139 7 - 146
Banks/financial institutions 2,072 41 74 2,039
Other corporate 2,099 50 138 2,011
------- ------- ------- -------
Total dollar-denominated 5,365 120 226 5,259
------- ------- ------- -------
Total fixed maturities 20,405 2,294 527 22,172
------- ------- ------- -------
Perpetual debentures:
Yen-denominated:
Primarily banks/financial
institutions 2,010 1 299 1,712
Dollar-denominated:
Banks/financial institutions 337 9 12 334
------- ------- ------- -------
Total perpetual debentures 2,347 10 311 2,046
------- ------- ------- -------
Equity securities 161 93 18 236
------- ------- ------- -------
Total securities
available for sale $ 22,913 $ 2,397 $ 856 $ 24,454
======= ======= ======= =======
EXH 13-45
<PAGE>
December 31, 2000
--------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities held to maturity,
carried at amortized cost:
Fixed maturities:
Yen-denominated:
Government $ 705 $ 28 $ 2 $ 731
Municipalities 328 38 - 366
Public utilities 584 5 59 530
Banks/financial institutions 1,115 43 17 1,141
Other corporate 913 36 15 934
------- ------- ------- -------
Total fixed maturities 3,645 150 93 3,702
------- ------- ------- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions 3,442 83 202 3,323
------- ------- ------- -------
Total perpetual debentures 3,442 83 202 3,323
------- ------- ------- -------
Total securities held
to maturity $ 7,087 $ 233 $ 295 $ 7,025
======= ======= ======= =======
EXH 13-46
<PAGE>
December 31, 1999
--------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities available for sale,
carried at fair value:
Fixed maturities:
Yen-denominated:
Government and guaranteed $ 6,771 $ 1,995 $ 6 $ 8,760
Municipalities 558 53 - 611
Public utilities 3,363 457 44 3,776
Banks/financial institutions 2,290 13 242 2,061
Other corporate 923 41 73 891
------- ------- ------- -------
Total yen-denominated 13,905 2,559 365 16,099
------- ------- ------- -------
Dollar-denominated:
Government 251 1 8 244
Municipalities 30 - 1 29
Mortgage-backed securities 187 1 4 184
Public utilities 271 2 17 256
Sovereign and supranational 203 1 3 201
Banks/financial institutions 2,028 12 115 1,925
Other corporate 2,021 8 108 1,921
------- ------- ------- -------
Total dollar-denominated 4,991 25 256 4,760
------- ------- ------- -------
Total fixed maturities 18,896 2,584 621 20,859
------- ------- ------- -------
Perpetual debentures:
Yen-denominated:
Primarily banks/financial
institutions 2,253 1 536 1,718
Dollar-denominated:
Banks/financial institutions 311 5 10 306
------- ------- ------- -------
Total perpetual debentures 2,564 6 546 2,024
------- ------- ------- -------
Equity securities 137 91 13 215
------- ------- ------- -------
Total securities
available for sale $ 21,597 $ 2,681 $ 1,180 $ 23,098
======= ======= ======= =======
EXH 13-47
<PAGE>
December 31, 1999
--------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
(In millions) Cost Gains Losses Value
--------- ---------- ---------- ---------
Securities held to maturity,
carried at amortized cost:
Fixed maturities:
Yen-denominated:
Government $ 829 $ 5 $ 14 $ 820
Municipalities 372 14 - 386
Public utilities 665 2 57 610
Banks/financial institutions 1,273 36 31 1,278
Other corporate 1,250 30 94 1,186
------- ------- ------- -------
Total fixed maturities 4,389 87 196 4,280
------- ------- ------- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions 3,903 73 244 3,732
------- ------- ------- -------
Total perpetual debentures 3,903 73 244 3,732
------- ------- ------- -------
Total securities held
to maturity $ 8,292 $ 160 $ 440 $ 8,012
======= ======= ======= =======
Fair values for debt securities were determined using market quotations
provided by outside securities consultants, prices provided by market makers
or estimates of fair values obtained from yield data relating to investment
securities with similar characteristics. The fair values for equity
securities were determined using market quotations on the principal public
exchange markets.
EXH 13-48
<PAGE>
The amortized cost and fair values of our investments in fixed maturities
at December 31, 2000, by contractual maturity are shown below:
AFLAC Japan AFLAC U.S.
-------------------- ---------------------
Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value
--------- --------- --------- ---------
Available for sale:
Due in one year or less $ 302 $ 311 $ 125 $ 125
Due after one year through
five years 2,257 2,510 245 252
Due after five years through
10 years 1,855 2,353 429 435
Due after 10 years 12,264 13,361 2,500 2,388
U.S. mortgage-backed
securities 79 81 349 356
-------- -------- -------- --------
Total fixed maturities
available for sale $ 16,757 $ 18,616 $ 3,648 $ 3,556
======== ======== ======== ========
Held to maturity:
Due in one year or less $ 191 $ 191 $ - $ -
Due after one year through
five years 120 121 - -
Due after five years through
10 years 741 778 - -
Due after 10 years 2,593 2,612 - -
-------- -------- -------- --------
Total fixed maturities
held to maturity $ 3,645 $ 3,702 $ - $ -
======== ======== ======== ========
Expected maturities may differ from contractual maturities because some
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.
In recent years we have purchased subordinated perpetual debenture
securities issued primarily by European and Japanese banks. These securities
are subordinated to other debt obligations of the issuer, but rank higher than
equity securities. Although these securities have no contractual maturity,
the issue-date fixed-rate interest coupons subsequently increase to a market-
interest rate plus 150 to 300 basis points and change to a variable-interest
rate basis, generally by the 25th year after issuance, thereby creating an
economic maturity date.
EXH 13-49
<PAGE>
The economic maturities of the perpetual debentures owned at December 31,
2000, were as follows:
AFLAC Japan AFLAC U.S.
---------------------- ----------------------
Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value
--------- --------- --------- ---------
Available for sale:
Due after one year
through five years $ 27 $ 28 $ - $ -
Due after five years
through 10 years 152 157 100 101
Due after 10 years 1,994 1,693 74 67
------- ------- ------- -------
Total perpetual
debentures available
for sale $ 2,173 $ 1,878 $ 174 $ 168
======= ======= ======= =======
Held to maturity:
Due after one year
through five years $ 148 $ 153 $ - $ -
Due after five years
through 10 years 920 890 - -
Due after 10 years 2,374 2,280 - -
------- ------- ------- -------
Total perpetual
debentures held
to maturity $ 3,442 $ 3,323 $ - $ -
======= ======= ======= =======
We attempt to match the duration of our assets with the duration of our
liabilities. For AFLAC Japan, the duration of policy benefit liabilities is
longer than that of the related invested assets due to the unavailability of
acceptable yen-denominated long-duration securities. The average duration of
policy liabilities was approximately 12 years for both 2000 and 1999. The
average duration of the yen-denominated debt securities was approximately 10
years in 2000 and nine years in 1999. Currently, when our debt securities
mature, the proceeds are reinvested at a yield below that of the average
interest required for the accretion of policy benefit liabilities on policies
issued in earlier years. Over the next five years, $3.0 billion at amortized
cost (with an average yield of 5.77%) of AFLAC Japan's yen-denominated debt
securities are scheduled to mature. However, the investment yield on new
investments has exceeded interest requirements on policies issued in recent
years. Several times since 1994 we have increased premium rates on new
policies issued in Japan to help offset the lower investment yields available
in Japan. Despite the shortfall in investment yields, adequate overall
margins still exist in the aggregate block of business.
EXH 13-50
<PAGE>
Information regarding realized and unrealized gains and losses from
investments for the years ended December 31 follows:
(In millions) 2000 1999 1998
-------- -------- --------
Realized investment gains (losses)
on securities:
Debt securities:
Available for sale:
Gross gains from sales $ 9 $ 12 $ 16
Gross losses from sales (53) (39) (35)
Net gains (losses) from redemptions - (8) 1
Held to maturity:
Gross loss from impairment (57) - -
Gross gains from redemptions - 1 -
------ ------ ------
Total debt securities (101) (34) (18)
------ ------ ------
Equity securities:
Gross gains from sales 9 27 21
Gross losses from sales (10) (6) (5)
------ ------ ------
Total equity securities (1) 21 16
------ ------ ------
Net realized losses $ (102) $ (13) $ (2)
====== ====== ======
Changes in unrealized gains (losses):
Debt securities:
Available for sale $ 43 $ (447) $ (377)
Held to maturity (257) 34 154
Equity securities (3) 2 10
------ ------ ------
Net change in unrealized losses $ (217) $ (411) $ (213)
====== ====== ======
The net effect on shareholders' equity of unrealized gains and losses
from investment securities at December 31 was as follows:
(In millions) 2000 1999
-------- --------
Unrealized gains on securities available
for sale $ 1,541 $ 1,501
Unamortized unrealized gains on securities
transferred to held to maturity 1,001 1,258
Less:
Policy liabilities - 840
Deferred income taxes 1,068 887
-------- --------
Shareholders' equity, net unrealized gains
on investment securities $ 1,474 $ 1,032
======== ========
EXH 13-51
<PAGE>
The issuers of two debt securities held in our portfolio experienced
significant credit rating downgrades during the first half of 2000. During
the second quarter of 2000, we sold one security carried in the available-
for-sale category at a pretax loss of $34 million. We recorded a pretax
impairment loss of $57 million on the other security, which was carried in
the held-to-maturity category. We have reclassified this security to the
available-for-sale category. These losses, which were included in realized
investment losses, decreased net earnings by $58 million ($.11 per basic and
diluted share) for the year ended December 31, 2000.
At December 31, 2000, we owned debt securities rated below investment-
grade in the amount of $196 million at amortized cost ($166 million at fair
value), or .7% of total debt securities. The below investment-grade
securities were investment-grade at the time of purchase and were
subsequently downgraded by credit rating agencies.
The following debt securities individually exceeded 10% of shareholders'
equity at December 31:
2000 1999
------------------- -------------------
Amortized Fair Amortized Fair
(In millions) Cost Value Cost Value
------------------- -------------------
Japan National Government $ 5,755 $ 7,448 $ 6,403 $ 8,368
The Tokyo Electric Power Co., Inc. 857 979 898 1,057
Chubu Electric Power Co., Inc. 655 712 695 764
The Israel Electric Corporation
Limited 528 456 429 371
Dai-Ichi Kangyo Bank 457 487 512 522
Sumitomo Bank * * 452 462
Credit Suisse First Boston * * 427 398
Province of Quebec * * 394 407
Deutsche Bank * * 387 313
*Less than 10%
Private placement investments held by AFLAC Japan at amortized cost
accounted for $14.3 billion, or 48.0%, and $13.6 billion, or 45.8%, of total
debt securities at December 31, 2000 and 1999, respectively. Of the total
private placements, reverse-dual currency debt securities (principal payments
in yen, interest payments in dollars) accounted for $4.8 billion and $4.9
billion at amortized cost as of December 31, 2000 and 1999, respectively.
EXH 13-52
<PAGE>
The components of net investment income for the years ended December 31
were as follows:
(In millions) 2000 1999 1998
-------- -------- --------
Fixed-maturity securities $ 1,280 $ 1,129 $ 985
Perpetual debentures 278 248 158
Short-term investments and
cash equivalents 7 7 8
Equity securities and other 4 2 3
------- ------- -------
Gross investment income 1,569 1,386 1,154
Less investment expenses 19 17 16
------- ------- -------
Net investment income $ 1,550 $ 1,369 $ 1,138
======= ======= =======
At December 31, 2000, debt securities with a fair value of $12 million
were on deposit with regulatory authorities. As of December 31, 2000, $183
million, at fair value, of AFLAC Japan's debt securities had been pledged to
Japan's policyholder protection fund. The Company retains ownership of all
securities on deposit and receives the related investment income.
(4) FINANCIAL INSTRUMENTS
NONDERIVATIVES: The carrying amounts for cash and cash equivalents,
receivables, accrued investment income, accounts payable, cash collateral and
payables for security transactions approximated their fair values due to the
short-term nature of these instruments. Consequently, such instruments are
not included in the table presented in this note.
The methods of determining the fair values of our investments in debt and
equity securities are described in Note 3. The fair values for notes payable
with fixed interest rates were obtained from an independent financial
information service.
We lend fixed-maturity securities to financial institutions in short-term
security lending transactions. These securities continue to be carried as
investment assets on our balance sheet during the term of the loans and are
not recorded as sales. We receive cash or other securities as collateral for
such loans. These short-term security lending arrangements increase
investment income with minimal risk. At December 31, 2000 and 1999, we had
security loans outstanding in the amounts of $123 million and $2.4 billion at
fair value, respectively. At December 31, 2000, we held cash in the amount of
$127 million as collateral for loaned securities. At December 31, 1999, we
held Japanese government bonds in the amount of $2.4 billion, at fair value,
as collateral for loaned securities. See Note 1 for a description of our
accounting policies for loaned securities.
Our security lending policy requires that the fair value of the
securities received as collateral and cash received as collateral be 102% and
100% or more, respectively, of the fair value of the loaned securities as of
the date the securities are loaned and not less than 100% thereafter.
EXH 13-53
<PAGE>
DERIVATIVES: We have cross-currency swaps outstanding related to our
$450 million senior notes. These cross-currency swaps have the effect of
converting the dollar-denominated principal and interest into yen-denominated
obligations. The notional amount and terms of the swaps match the principal
amount and terms of the senior notes. These swaps have been designated as a
hedge of our net investment in AFLAC Japan.
At December 31, 2000, we had outstanding interest rate swaps on 19.1
billion yen ($167 million) of our variable-interest-rate yen-denominated
borrowings (Note 6). These swaps reduce the impact of changes in interest
rates on our borrowing costs and effectively change our interest rate from
variable to fixed. The interest rate swaps have notional principal amounts
that equal the anticipated unpaid principal amounts on a portion of these
loans. Under these agreements, we make fixed-rate payments at 2.29% on one
loan and 1.24% on another loan and receive floating-rate payments (.55% at
December 31, 2000, plus loan costs of 25 and 20 basis points, respectively)
based on three-month Japanese yen LIBOR.
For information regarding new accounting requirements for derivative
instruments as of January 1, 2001, see Note 1, Accounting Pronouncements Not
Yet Adopted.
The fair values of the cross-currency and interest rate swaps are the
estimated amounts that we would receive or pay to terminate the swap
agreements at the reporting date. We are exposed to credit risk in the event
of nonperformance by counterparties to these contracts. The counterparties
are U.S. and Japanese financial institutions with the following credit ratings
as of December 31, 2000:
Counterparty Notional Amount
Credit Rating (In millions)
------------------- ---------------------
AA $ 318
A 195
BBB 104
-------
Total $ 617
=======
EXH 13-54
<PAGE>
The carrying values and estimated fair values of the Company's financial
instruments as of December 31 were as follows:
2000 1999
------------------------ -----------------------
Carrying Fair Carrying Fair
(In millions) Amount Value Amount Value
------------------------ -----------------------
Assets:
Fixed-maturity
securities $ 25,817 $ 25,874 $ 25,248 $ 25,139
Perpetual debentures 5,488 5,369 5,927 5,756
Equity securities 236 236 215 215
Securities held as
collateral for
loaned securities* - - - 2,398
Liabilities:
Notes payable (excluding
capitalized leases) 1,048 1,043 999 962
Derivatives:
Cross-currency swaps:
Currency portion 34 34 93 93
Interest rate portion* (4) (4) (4) 15
Interest rate swaps* - 2 - 7
Payables for return of
collateral on loaned
securities* - - - 2,398
* Off-balance sheet financial instruments - the interest rate swap derivatives
will be recorded at fair value on the balance sheet as of January 1, 2001,
under the new accounting requirements of SFAS No. 133 (See Note 1).
The above table excludes liabilities for future policy benefits of $26.1
billion and $27.3 billion at December 31, 2000 and 1999, respectively, as
these liabilities are not considered financial instruments.
EXH 13-55
<PAGE>
(5) POLICY LIABILITIES
The liability for future policy benefits at December 31 consisted of the
following:
Liability Amounts Interest Rates
------------------- -------------------
Policy Year
Issue of In 20
(In millions) Year 2000 1999 Issue Years
------ -------- -------- -------- ---------
Health insurance:
Japan: 1999-00 $ 242 $ 29 3.0% 3.0%
1997-99 1,298 993 3.5 3.5
1994-96 2,590 2,542 4.0-4.5 4.0-4.5
1974-94 17,755 18,951 5.25-7.0 5.0-5.65
U.S.:
1998-00 190 107 7.0 7.0
1986-00 1,448 1,327 6.0-8.0 6.0
1981-86 276 280 6.5-7.0 5.5-6.5
Other 157 150
Life insurance
and annuities:
Japan: 1999-00 57 7 3.0 3.0
1997-99 292 235 3.5 3.5
1994-96 580 544 4.0 4.0
1985-93 1,188 1,268 5.25-5.65 5.25-5.65
U.S.: 1956-00 41 37 4.0-6.0 4.0-6.0
Adjustment for
unrealized gains on
investments (Note 3) - 840
------ ------
Total $26,114 $27,310
====== ======
The weighted-average interest rates reflected in the consolidated
statements of earnings for future policy benefits for Japanese policies were
5.2% in 2000, 5.3% in 1999, and 5.4% in 1998; and for U.S. policies, 6.4% for
each year in the three-year period ended December 31, 2000.
EXH 13-56
<PAGE>
Changes in the liability for unpaid policy claims are summarized as
follows for the years ended December 31:
(In millions) 2000 1999 1998
-------- -------- --------
Unpaid supplemental health claims -
beginning of year $ 1,558 $ 1,222 $ 987
------- ------- -------
Add claims incurred during the year
related to:
Current year 3,663 3,081 2,460
Prior years (285) (212) (136)
------- ------- -------
Total incurred 3,378 2,869 2,324
------- ------- -------
Less claims paid during the year:
On claims incurred during
current year 2,303 1,969 1,579
On claims incurred during
prior years 813 709 617
------- ------- -------
Total paid 3,116 2,678 2,196
------- ------- -------
Effect of foreign exchange rate
changes on unpaid claims (150) 145 107
------- ------- -------
Unpaid supplemental health claims -
end of year 1,670 1,558 1,222
Unpaid life claims - end of year 75 60 41
------- ------- -------
Total liability for
unpaid policy claims $ 1,745 $ 1,618 $ 1,263
======= ======= =======
Amounts shown for prior-year claims incurred during the year primarily
result from actual claim settlements at less than the original estimates,
which included a provision for adverse deviation.
EXH 13-57
<PAGE>
(6) NOTES PAYABLE
A summary of notes payable at December 31 follows:
(In millions) 2000 1999
-------- --------
6.50% senior notes due April 2009 (principal
amount $450) $ 449 $ 449
1.55% yen-denominated Samurai notes due October 2005
(principal amount 30 billion yen) 261 -
Unsecured, yen-denominated notes payable to banks:
Reducing revolving credit agreement due July 2001:
2.29% fixed interest rate 99 222
Variable interest rate (.78% at December 31, 2000) 14 31
Revolving credit agreement due November 2002:
1.24% fixed interest rate 68 114
Variable interest rate (.73% at December 31, 2000) 157 138
Short-term - 45
Obligations under capitalized leases due
monthly through 2005, secured by computer
equipment in Japan 31 19
------ ------
Total notes payable $ 1,079 $ 1,018
====== ======
In September 2000, we filed a shelf registration statement with Japanese
regulatory authorities to issue up to 100 billion yen of yen-denominated
Samurai notes. These securities are not for sale to United States residents
or entities. On October 25, 2000, we issued in Japan 30 billion yen ($278
million) of 1.55% Samurai notes, due October 25, 2005. Issue costs were $1
million. These notes are redeemable at our option at any time with a
redemption price equal to the principal amount of the notes being redeemed
plus a premium.
In April 1999, we issued $450 million of 6.50% senior notes due April 15,
2009. The notes are redeemable at our option at any time with a redemption
price equal to the principal amount of the notes being redeemed plus a make-
whole amount. We have entered into cross-currency swaps that have the effect
of converting the dollar-denominated principal and interest into yen-
denominated obligations. The notional amount of the cross-currency swaps is
$450 million (55.6 billion yen) with a blended fixed interest rate of 1.67%.
At December 31, 2000 and 1999, other liabilities included $30 million and $89
million, respectively, representing the currency and accrued interest portions
of the fair value of the cross-currency swaps.
We have an unsecured reducing revolving credit agreement that provides
for bank borrowings through July 2001 in either U.S. dollars or Japanese yen.
The current borrowing limit is $125 million. At December 31, 2000, 11.4
billion yen ($99 million) was outstanding at a fixed interest rate and 1.6
billion yen ($14 million) was outstanding at a variable interest rate under
this agreement.
We also have an unsecured revolving credit agreement that provides for
bank borrowings through November 2002 with a borrowing limit of $250 million,
payable in either U.S. dollars or Japanese yen. At December 31, 2000, 7.8
billion yen ($68 million) was outstanding at a fixed interest rate and 18.1
billion yen ($157 million) was outstanding at a variable interest rate under
this agreement.
EXH 13-58
<PAGE>
For those loans denominated in yen, the principal amount of the loans as
stated in dollar terms will fluctuate due to changes in the yen/dollar
exchange rate.
The cross-currency swaps and the interest rate swaps related to the 2.29%
and 1.24% (fixed rates after swaps) loans are described in Note 4.
The aggregate contractual maturities of notes payable during each of the
years after December 31, 2000, are: 2001, $123 million; 2002, $234 million;
2003, $8 million; 2004, $4 million; 2005, $261 million; and thereafter, $449
million.
We were in compliance with all of the covenants of the credit agreements
at December 31, 2000.
(7) INCOME TAXES
The components of income tax expense (benefit) applicable to pretax
earnings for the years ended December 31 were as follows:
(In millions) Japan U.S. Total
------- ------- -------
2000:
Current $ 319 $ 19 $ 338
Deferred - operations (73) 60 (13)
------- ------- -------
Total income tax expense $ 246 $ 79 $ 325
======= ======= =======
1999:
Current $ 211 $ 19 $ 230
Deferred - operations (1) 45 44
Deferred tax benefit from
Japanese tax rate reduction (185) 118 (67)
------- ------- -------
Total income tax expense $ 25 $ 182 $ 207
======= ======= =======
1998:
Current $ 252 $ 25 $ 277
Deferred - operations (88) (4) (92)
Deferred tax benefit from
Japanese tax rate reduction (121) - (121)
------- ------- -------
Total income tax expense $ 43 $ 21 $ 64
======= ======= =======
EXH 13-59
<PAGE>
Income tax expense in the accompanying consolidated financial statements
varies from the amount computed by applying the expected U.S. tax rate of 35%
to pretax earnings. The principal reasons for the differences and the related
tax effects for the years ended December 31 are summarized as follows:
(In millions) 2000 1999 1998
------ ------ ------
Income taxes based on U.S.
statutory rates $ 354 $ 272 $ 193
Deferred tax benefit from Japanese
tax rate reductions - (67) (121)
U.S. alternative minimum tax - - 12
Utilization of foreign tax credit
carryforwards (22) (20) (47)
Release of retirement liability (33) - -
Noninsurance losses generating no
current tax benefit - 3 9
Nondeductible expenses 14 12 9
Other, net 12 7 9
------ ------ ------
Income tax expense $ 325 $ 207 $ 64
====== ====== ======
Income tax expense (benefit) for the years ended December 31 was
allocated as follows:
(In millions) 2000 1999 1998
------ ------ ------
Statements of earnings $ 325 $ 207 $ 64
------ ------ ------
Other comprehensive income:
Change in unrealized foreign currency
translation gains 135 (141) (29)
Unrealized gains on investment securities:
Unrealized holding gains (losses)
arising during the year 146 (75) 125
Reclassification adjustment
for realized (gains) losses
included in net earnings 34 9 2
------ ------ ------
Total income taxes allocated to
other comprehensive income 315 (207) 98
------ ------ ------
Additional paid-in capital(exercise
of stock options) (2) (2) (1)
------ ------ ------
Total income taxes $ 638 $ (2) $ 161
====== ====== ======
In March 1998, the Japanese government reduced the corporate income tax
rate, which lowered AFLAC Japan's rate from 45.3% to 41.7%. The tax rate was
again reduced in March 1999, from 41.7% to 36.2%. These tax rate reductions
decreased our consolidated liability for deferred income taxes. The
reductions were the net effect of applying the new tax rates to the temporary
differences that existed between the Japanese tax basis and financial
reporting basis of assets and liabilities, and the limitations imposed by the
U.S. foreign tax credit provisions.
EXH 13-60
<PAGE>
The reduction of the consolidated deferred income tax liability from the
1999 tax rate reduction increased net earnings in the first quarter of 1999 by
$67 million ($.13 per basic share and $.12 per diluted share). The 1998 tax
rate reduction increased net earnings in the first quarter of 1998 by $121
million ($.23 per basic share and $.22 per diluted share).
The 1999 reduction in the Japanese corporate income tax rate did not
significantly change our combined U.S./Japan effective tax rate due to the
operation of the U.S. foreign tax credit provisions.
Changes in unrealized foreign currency translation gains/losses included
deferred income tax expense of $76 million in 2000 and deferred income tax
benefits of $80 million in 1999 and $29 million in 1998 that represented
Japanese income taxes on currency translation gains/losses that arose for
Japanese tax purposes from the conversion of AFLAC Japan's dollar-denominated
investments into yen.
The income tax effects of the temporary differences that gave rise to
deferred income tax assets and liabilities as of December 31 were as follows:
(In millions) 2000 1999
-------- --------
Deferred income tax liabilities:
Deferred acquisition costs $ 1,077 $ 1,204
Unrealized gains on investment securities 455 415
Difference in tax basis of investment
in AFLAC Japan 82 -
Other basis differences in investment
securities 256 725
Premiums receivable 92 79
Unrealized exchange gain on yen-denominated
notes payable 6 -
Other liabilities 3 -
------ ------
Total deferred income tax liabilities 1,971 2,423
------ ------
Deferred income tax assets:
Difference in tax basis of investment in
AFLAC Japan - 227
Unrealized exchange loss on yen-denominated
notes payable - 58
Policy benefit reserves 63 405
Policyholder protection fund 28 67
Unfunded retirement benefits 34 71
Other accrued expenses 74 80
Tax credit carryforwards 112 96
Other 187 211
------ ------
Total gross deferred tax assets 498 1,215
Less valuation allowance 149 157
------ ------
Total deferred income tax assets 349 1,058
------ ------
Net deferred income tax liability 1,622 1,365
Current income tax liability 272 146
------ ------
Total income tax liability $ 1,894 $ 1,511
====== ======
EXH 13-61
<PAGE>
A valuation allowance is provided when it is more likely than not that
deferred tax assets will not be realized. We have established valuation
allowances primarily for foreign tax credit and noninsurance loss
carryforwards that exceed projected future offsets. Under U.S. income tax
rules, only 35% of noninsurance losses can be offset against life insurance
taxable income each year. During 2000, the valuation allowance for deferred
tax assets decreased by $8 million (increased by $68 million in 1999) due to
changes in carryforwards of foreign tax credits, alternative minimum tax
credits and noninsurance losses. For current U.S. income tax purposes,
foreign tax credit carryforwards of $32 million and alternative minimum tax
credits of $79 million were available at December 31, 2000. The foreign tax
credit carryforwards expire in 2004.
(8) SHAREHOLDERS' EQUITY
The following is a reconciliation of the number of shares of the
Company's common stock for the years ended December 31:
(In thousands of shares) 2000 1999 1998
-------- -------- --------
Common stock - issued:
Balance at beginning of year 640,698 635,941 632,761
Exercise of stock options 4,115 4,757 3,180
-------- -------- --------
Balance at end of year 644,813 640,698 635,941
-------- -------- --------
Treasury stock:
Balance at beginning of year 109,216 104,573 99,889
Purchases of treasury stock:
Open market 9,657 8,633 7,612
Other 269 375 425
Shares issued to sales associates
stock bonus plan and AFL
Stock Plan (1,182) (1,664) (2,437)
Exercise of stock options (2,357) (2,701) (916)
-------- -------- --------
Balance at end of year 115,603 109,216 104,573
-------- -------- --------
Shares outstanding at end of year 529,210 531,482 531,368
======== ======== ========
As of December 31, 2000, we had approximately 16.5 million shares
available for purchase under the share repurchase program authorized by the
board of directors.
STOCK SPLIT: On February 13, 2001, the board of directors declared a
two-for-one stock split to shareholders of record at the close of business on
February 27, 2001, payable on March 16, 2001. Share and per-share amounts
have been adjusted to reflect this split.
After the stock split, the par value will remain $.10 per share. The
adjustment to increase the common stock account will be recorded on March 16,
2001. In 2000 shareholders approved an increase in the number of authorized
shares from 400 million to one billion.
EXH 13-62
<PAGE>
STOCK OPTIONS: The Company's stock option plan allows grants for both
incentive stock options (ISO) and non-qualifying stock options (NQSO) to
employees and NQSO to members of the board of directors. The options have a
term of 10 years. The exercise price is equal to the fair market value at the
date of grant. Therefore, we do not recognize compensation expense related to
stock options. The options are exercisable immediately unless they are
subject to a vesting schedule determined by the board of directors. At
December 31, 2000, 13.4 million shares were available for future grants.
The following table summarizes stock option activity:
Weighted-Average
Option Exercise Price
(In thousands of shares) Shares per Share
---------- ----------------
Outstanding at December 31, 1997 32,957 $ 5.75
Granted in 1998 3,906 15.09
Canceled in 1998 (67) 11.75
Exercised in 1998 (4,296) 3.46
-------
Outstanding at December 31, 1998 32,500 7.16
Granted in 1999 2,479 23.39
Canceled in 1999 (155) 15.21
Exercised in 1999 (7,665) 4.67
-------
Outstanding at December 31, 1999 27,159 9.30
Granted in 2000 5,619 22.85
Canceled in 2000 (161) 14.39
Exercised in 2000 (6,636) 5.12
-------
Outstanding at December 31, 2000 25,981 $ 13.27
=======
(In thousands of shares) 2000 1999 1998
---------- ---------- ----------
Shares exercisable at
end of year 16,782 22,168 25,907
======= ======= =======
EXH 13-63
<PAGE>
The following table summarizes information about stock options
outstanding at December 31, 2000:
(In thousands Options Outstanding Options Exercisable
of shares) ----------------------------------- ----------------------
Wgtd.-Avg. Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs) Price Exercisable Price
- --------------- ----------- ----------- --------- ----------- ---------
$ 1.23 - $ 4.03 610 .9 $ 3.25 610 $ 3.25
4.71 4,846 2.5 4.71 4,846 4.71
4.80 - 7.92 5,013 4.7 7.35 5,013 7.35
8.48 - 13.66 4,131 6.3 11.67 4,043 11.63
13.84 - 21.16 4,735 7.9 16.80 1,461 15.16
21.48 - 23.23 5,122 9.3 23.11 769 22.90
23.41 - 34.48 1,524 9.0 24.31 40 24.97
------ ------
$ 1.23 - $34.48 25,981 6.2 $ 13.27 16,782 $ 8.90
====== ======
As permitted by SFAS No. 123, which became effective in 1995, we do not
recognize compensation cost in the consolidated statements of earnings for
employee stock options. Had compensation cost for stock options granted after
1994 been determined using the alternative fair-value-based method, the effect
on our net earnings and net earnings per share would approximate the following
pro forma amounts:
2000 1999 1998
-------- -------- --------
Decrease to:
Net earnings (in millions) $ 27 $ 13 $ 13
Net earnings per share - basic .05 .03 .02
Net earnings per share - diluted .05 .02 .02
For the above pro forma information, the fair value of each option
granted after 1994 was estimated on the date of grant using the Black-Scholes
multiple option approach with the following assumptions for options granted
during the three-year period ended December 31, 2000:
2000 1999 1998
--------- --------- ---------
Expected life from vesting
date (years) 4.2-5.8 3.7-4.7 3.5-4.4
Dividend yield .5% .6% .6%
Expected volatility 32.0% 30.3% 27.3%
Risk-free interest rate 6.0% 6.0% 5.5%
These fair value amounts were then amortized over the vesting periods of
the related options.
EXH 13-64
<PAGE>
The pro forma information presented above is not indicative of future
amounts. We were required to apply SFAS No. 123 prospectively. Therefore,
the above pro forma disclosures do not include amortization of the fair value
of awards prior to 1995. Also, we expect that additional options will be
granted in future years.
VOTING RIGHTS: In accordance with the Parent Company's Articles of
Incorporation, shares of common stock are generally entitled to one vote per
share until they have been held by the same beneficial owner for a continuous
period of 48 months, at which time they become entitled to 10 votes per share.
(9) STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS
Net assets of the insurance subsidiaries aggregated $5.6 billion at
December 31, 2000, on a GAAP basis. AFLAC Japan accounted for $3.6 billion,
or 65.2%, of these net assets.
Our insurance subsidiaries are required to report their results of
operations and financial position to state insurance regulatory authorities,
on the basis of statutory accounting practices prescribed or permitted by such
authorities. Our branch in Japan, AFLAC Japan, must report to the Japanese
Financial Services Agency (FSA). As determined on a U.S. statutory accounting
basis, AFLAC's net income, which includes realized investment gains and
losses, was $210 million in 2000, $344 million in 1999 and $231 million in
1998. Capital and surplus was $1.7 billion and $1.6 billion at December 31,
2000 and 1999, respectively.
Reconciliations of AFLAC's net assets on a GAAP basis to net assets
determined on a U.S. statutory accounting basis as of December 31 were as
follows:
(In millions) 2000 1999
-------- --------
Net assets on GAAP basis $ 5,572 $ 4,874
Adjustment of debt securities from fair value
to amortized cost (2,113) (2,691)
Elimination of deferred policy acquisition costs (3,663) (3,677)
Adjustment to policy liabilities 796 1,801
Elimination of deferred income taxes 1,678 1,463
Other, net (597) (164)
------- -------
Net assets on U.S. statutory
accounting basis $ 1,673 $ 1,606
======= =======
The National Association of Insurance Commissioners has recodified
statutory accounting principles to promote standardization throughout the
industry. We are adopting these new statutory accounting principles effective
January 1, 2001. As a result, statutory net assets will increase by
approximately $130 million on January 1, 2001.
The Parent Company depends on its subsidiaries for cash flow, primarily
in the form of dividends and management fees. Consolidated retained earnings
in the accompanying financial statements largely represent undistributed
earnings of our insurance subsidiary. Amounts available for dividends,
EXH 13-65
<PAGE>
management fees (see Note 2) and other payments to the Parent Company by its
insurance subsidiary may fluctuate due to different accounting methods
required by regulatory authorities. These payments are also subject to
various regulatory restrictions and approvals related to safeguarding the
interests of insurance policyholders. One of the primary considerations is
that our insurance subsidiary must maintain adequate risk-based capital for
U.S. regulatory authorities and adequate solvency margins for Japanese
regulatory authorities. Also, the maximum amount of dividends that can be
paid to shareholders by insurance companies domiciled in the state of Georgia
without prior approval of the Commissioner of Insurance is the greater of the
net gain from operations, which excludes realized investment gains and losses,
for the previous year determined under statutory accounting principles or 10%
of statutory equity as of the previous year-end. Dividend payments by AFLAC
during 2001 in excess of $216 million would require such approval. Dividends
paid by AFLAC during 2000 were $234 million.
A portion of AFLAC Japan annual earnings, as determined on a Japanese
statutory accounting basis, can be remitted each year to AFLAC U.S. after
complying with solvency margin provisions and satisfying various conditions
imposed by Japanese regulatory authorities for protecting policyholders.
Profit remittances to the United States can fluctuate due to changes in the
amounts of Japanese regulatory earnings. Among other items, factors affecting
regulatory earnings include Japanese regulatory accounting practices and
fluctuations in currency translations of AFLAC Japan's dollar-denominated
investments into yen. Earnings were remitted from AFLAC Japan to AFLAC U.S.
in the amount of $157 million in 2000, $243 million in 1999 and $154 million
in 1998. In light of the deregulation of the insurance market, we elected to
repatriate less than the maximum amount in 2000 in order to maintain a strong
solvency margin in Japan. In 2000, the maximum amount we could have
repatriated was $351 million. We repatriated the maximum amount in both 1999
and 1998.
Net assets (unaudited) of AFLAC Japan, based on Japanese statutory
accounting practices, aggregated $777 million and $638 million at December 31,
2000 and 1999, respectively. Japanese statutory accounting practices differ
in many respects from U.S. GAAP. Under Japanese statutory accounting
practices, policy acquisition costs are charged off immediately, policy
benefit and claim reserving methods are different, policyholder protection
fund obligations are not accrued, deferred income tax liabilities are
recognized on a different basis, and investment securities are currently
carried at cost less certain market value adjustments for foreign exchange
losses on dollar-denominated securities.
For the Japanese reporting fiscal year ending March 31, 2002, AFLAC Japan
will be required to adopt a new Japanese statutory accounting standard
regarding fair value accounting for investments. Currently, debt securities
are recorded at amortized cost for FSA purposes. Under the new accounting
standard AFLAC Japan will be required to record debt securities in four
categories: at fair value in an available-for-sale category, at amortized
cost in a held-to-maturity category, at amortized cost in a special category
for securities held for long-term holding purposes, or at fair value in a
trading category.
Under this new regulatory accounting standard, the unrealized gains and
losses on debt securities available for sale will be reported in FSA capital
and surplus. This new accounting method may result in significant
fluctuations in FSA equity, in the AFLAC Japan solvency margin and in amounts
available for annual profit repatriation.
EXH 13-66
<PAGE>
(10) BENEFIT PLANS
Reconciliations of the funded status of the basic employee defined-
benefit pension plans with amounts recognized in the consolidated balance
sheets as of December 31 were as follows:
2000 1999
---------------- ----------------
(In thousands) Japan U.S. Japan U.S.
------- ------- ------- -------
Projected benefit obligation:
Benefit obligation at
beginning of year $74,186 $62,358 $43,423 $60,420
Service cost 4,458 2,891 4,675 2,938
Interest cost 2,093 4,314 1,658 4,311
Actuarial loss (gain) 1,647 5,172 (2,498) (5,799)
Benefits paid (1,039) (1,326) (554) (1,376)
Effect of foreign exchange
rate changes (8,416) - 6,010 -
Plan amendments - - - 1,864
Benefit obligations assumed
from government plan - - 21,472 -
------ ------ ------ ------
Benefit obligation at
end of year 72,929 73,409 74,186 62,358
------ ------ ------ ------
Plan assets:
Fair value of plan assets at
beginning of year 49,830 56,425 23,441 48,541
Actual return on plan assets (628) 8,208 727 9,260
Employer contribution 6,138 - 5,429 -
Benefits paid (1,039) (1,326) (554) (1,376)
Effect of foreign exchange
rate changes (5,632) - 3,677 -
Assets transferred from
government plan - - 17,110 -
------ ------ ------ ------
Fair value of plan assets at
end of year 48,669 63,307 49,830 56,425
------ ------ ------ ------
Funded status (24,260) (10,102) (24,356) (5,933)
Unrecognized net actuarial
loss (gain) 8,455 1,273 8,755 (703)
Unrecognized transition
obligation (asset) 3,772 (597) 4,578 (718)
Unrecognized prior service cost 828 1,754 1,013 1,890
------ ------ ------ ------
Accrued benefit cost $(11,205) $(7,672) $(10,010) $(5,464)
====== ====== ====== ======
In 1999, we transferred most of the assets of the AFLAC Japan employee
retirement plan from an insured arrangement to a trust managing a portfolio of
investment securities. In 1999, we also assumed a pension benefit program
together with the related assets for AFLAC Japan employees that was previously
administered by the Japanese government.
EXH 13-67
<PAGE>
The components of retirement expense and actuarial assumptions for the
years ended December 31 are as follows:
2000 1999 1998
-------------- -------------- --------------
(In thousands) Japan U.S. Japan U.S. Japan U.S.
------ ------ ------ ------ ------ ------
Components of net periodic
benefit cost:
Service cost $4,458 $2,891 $4,675 $2,938 $2,940 $2,362
Interest cost 2,093 4,314 1,658 4,311 1,018 3,491
Expected return on plan
assets (1,470) (5,013) (1,516) (4,313) (451) (4,086)
Recognized net actuarial
loss 202 - 363 265 218 -
Amortization of transition
obligation (asset) 333 (121) 258 (122) 77 (122)
Amortization of prior
service cost 81 138 77 138 67 16
----- ----- ----- ----- ----- -----
Net periodic benefit cost $5,697 $2,209 $5,515 $3,217 $3,869 $1,661
===== ===== ===== ===== ===== =====
Weighted-average actuarial
assumptions used in the
calculations:
Discount rate - net
periodic benefit cost 3.0% 7.0% 3.0% 6.5% 3.0% 7.0%
Discount rate - benefit
obligations 3.0 7.0 3.0 7.0 3.0 6.5
Expected return on plan
assets 2.5 9.0 4.5 9.0 2.5 9.0
Rate of compensation
increase 3.5 4.0 3.5 4.0 3.5 4.0
In addition to the benefit obligations for funded employee plans, we also
maintain unfunded supplemental retirement plans for certain officers and
beneficiaries. The surviving spouse of the Company's former chairman of the
board, John B. Amos, had been receiving lifetime spousal retirement benefits
under a shareholder-approved employment contract. The benefits were payable
at .5% of the Company's pretax earnings for the previous year, as defined in
the agreement. In May 2000, the former chairman's spouse unexpectedly
passed away. The Company had accrued an unfunded liability for projected
retirement payments based on a normal life expectancy. The release of the
remaining accrued liability increased net earnings by $99 million ($.19 per
basic share and $.18 per diluted share) for the year ended December 31,
2000.
Due to the release of the retirement liability, we recorded a net benefit
of $96 million related to all of the unfunded plans for 2000. We recognized
expense for these plans of $39 million in 1999 and $30 million in 1998. The
accrued retirement liability for the unfunded supplemental retirement plans at
December 31, 2000 and 1999, was $151 million and $260 million, respectively.
The actuarial present value of projected benefit obligations was $150 million
and $260 million at December 31, 2000 and 1999, respectively. The discount
rates used were the same as for the funded plans.
EXH 13-68
<PAGE>
Reconciliations of the benefit obligation of the unfunded retiree medical
program and other postretirement benefits for U.S. employees with amounts
recognized in the accompanying consolidated balance sheets as of December 31
were as follows:
(In thousands) 2000 1999
-------- --------
Benefit obligation:
Benefit obligation at beginning of year $ 12,488 $ 10,822
Service cost 408 361
Interest cost 874 752
Actuarial loss 1,610 503
Plan amendments - 393
Benefits paid (815) (343)
------- -------
Unfunded benefit obligation at end of year 14,565 12,488
Unrecognized net actuarial gain (loss) (1,080) 530
Unrecognized prior service cost (342) (368)
------- -------
Accrued benefit cost $ 13,143 $ 12,650
======= =======
The components of expenses for the retiree medical program and other
postretirement benefits, along with actuarial assumptions, were as follows for
the years ended December 31:
(In thousands) 2000 1999 1998
-------- -------- --------
Service cost $ 408 $ 361 $ 320
Interest cost 874 752 684
Recognized net actuarial gain - - (30)
Amortization of prior service cost 25 26 -
------- ------- -------
Net periodic benefit cost $ 1,307 $ 1,139 $ 974
======= ======= =======
Discount rate:
Net periodic cost 7.0% 6.5% 7.0%
Benefit obligations 7.0 7.0 6.5
Effect of 1-percentage point increase
in health care cost trend rate:
On total of service and interest
cost components $ 136 $ 119 $ 102
On postretirement benefit obligation 1,180 991 791
Effect of 1-percentage point decrease
in health care cost trend rate:
On total of service and interest
cost components (116) (101) (97)
On postretirement benefit obligation (1,010) (846) (743)
The projected health care cost trend rate used in 2000 was 10%, graded to
7% over five years.
EXH 13-69
<PAGE>
STOCK BONUS PLAN: AFLAC U.S. maintains a stock bonus plan for eligible
U.S. sales associates. Plan participants are awarded rights on a monthly
basis to shares of AFLAC Incorporated common stock, based on their sales of
insurance policies. The cost of these awards, which is included in deferred
policy acquisition costs, amounted to $18 million in both 2000 and 1999, and
$10 million in 1998. Prior to July 1999, participants received the shares of
stock after satisfying various vesting requirements and other conditions.
This stock bonus program was revised effective July 1, 1999, to substantially
eliminate the vesting requirements and to make various other modifications.
As a result of this change, plan participants became 100% vested in their
accumulated share rights under the original program and the related shares of
stock held in a trust were distributed. The market value of the distributed
shares was charged against a liability for accrued stock compensation and the
excess of market value over share cost ($42 million) was recognized as
additional paid-in capital.
(11) CONTINGENCIES
LITIGATION: We are a defendant in various litigation considered to be
in the normal course of business. Some of this litigation is pending in
Alabama, where large punitive damages bearing little relation to the actual
damages sustained by plaintiffs have been awarded against other companies,
including insurers, in recent years. Although the final results of any
litigation cannot be predicted with certainty, we believe the outcome of
pending litigation will not have a material adverse effect on our financial
position, results of operations, or cash flows.
EXH 13-70
<PAGE>
(12) SUPPLEMENTARY INFORMATION
2000 1999 1998
-------- -------- --------
Weighted-average shares used in
calculating earnings per share
(in thousands):
Average outstanding shares used
for calculating basic EPS 530,607 531,737 532,609
Dilutive effect of stock options 14,299 19,108 19,136
-------- -------- --------
Average outstanding shares used
for calculating diluted EPS 544,906 550,845 551,745
======== ======== ========
- --------------------------------------------------------------------------
Other:
Policy acquisition costs deferred
during the year (in millions) $ 612 $ 556 $ 436
Commissions deferred as a
percentage of total acquisition
costs deferred 71% 72% 69%
Personnel compensation and
benefits as a percentage
of insurance expenses 42% 40% 37%
- --------------------------------------------------------------------------
Supplemental disclosures of cash
flow information (in millions):
Income taxes paid $ 215 $ 411 $ 210
Interest paid 21 17 12
Impairment loss on fixed
maturity security 57 - -
Noncash financing activities:
Capital lease obligations 25 4 7
Treasury shares issued for:
Dividends to shareholders 5 5 4
Associate stock bonus plan 7 54 10
- --------------------------------------------------------------------------
Property and equipment (in millions):
Land $ 132 $ 147 $ 131
Buildings 355 374 335
Equipment 169 156 159
-------- -------- --------
656 677 625
Less accumulated depreciation 175 168 159
-------- -------- --------
Net property and equipment $ 481 $ 509 $ 466
======== ======== ========
- --------------------------------------------------------------------------
EXH 13-71
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the consolidated financial statements of
AFLAC Incorporated and subsidiaries. The statements have been prepared in
accordance with generally accepted accounting principles and include amounts
based upon management's best estimates and judgments. Informed judgments
and estimates are used for those transactions not yet complete or for which
the ultimate effects cannot be measured precisely. Financial information
elsewhere in this annual report is consistent with the information in the
financial statements.
The Company's internal controls are designed to reasonably assure that
AFLAC Incorporated's books and records reflect the transactions of the
Company, that assets are safeguarded, and that the Company's established
policies and procedures are followed. The effectiveness of the controls
system is supported by the selection and training of qualified personnel, an
organizational structure that provides an appropriate division of
responsibility, and a comprehensive internal audit program.
The Company engages KPMG LLP as independent auditors to audit its
financial statements and express their opinion thereon. Their audits
include reviews and tests of the Company's internal controls to the extent
they believe necessary to determine the audit procedures to be performed
that will support their opinion. Members of that firm also have the right
of full access to each member of management in conducting their audits. The
report of KPMG LLP appears on the following page.
The audit committee of the board of directors, which comprises outside
directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The committee
meets periodically with representatives of management, as well as with the
independent and internal auditors, to review matters of a material nature
related to financial reporting and the planning, results and recommendations
of audits. The independent and internal auditors have free access to the
audit committee, without management present, to discuss any matter they
believe should be brought to the attention of the committee. The committee
is also responsible for making recommendations to the board of directors
concerning the selection of the independent auditors.
/s/ Daniel P. Amos
- ---------------------------------------
Daniel P. Amos
President and Chief Executive Officer
/s/ Kriss Cloninger III
- ---------------------------------------
Kriss Cloninger III
Executive Vice President and Chief Financial Officer
EXH 13-72
<PAGE>
INDEPENDENT AUDITORS' REPORT
The shareholders and board of directors of AFLAC Incorporated:
We have audited the accompanying consolidated balance sheets of AFLAC
Incorporated and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of earnings, shareholders' equity, cash
flows and comprehensive income for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are
the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AFLAC
Incorporated and subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Atlanta, Georgia
January 26, 2001
EXH 13-73
<PAGE>
<TABLE>
Unaudited Consolidated Quarterly Financial Data
(In millions, except for per-share amounts)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three Months ended, March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000
- ---------------------------------------------------------------------------------------------------------------------------
Amount % Change Amount % Change Amount % Change Amount % Change
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 2,398 17.1% $ 2,358 16.1% $ 2,475 12.7% $ 2,488 5.2%
Net earnings 156 (20.1) 202(1) 54.8 163 13.5 166 63.2
- ---------------------------------------------------------------------------------------------------------------------------
Per common share:
Net earnings (basic) $ .29 (21.6)% $ .38(1) 52.0% $ .31 14.8% $ .31 63.2%
Net earnings (diluted) .29 (17.1) .37(1) 54.2 .30 15.4 .30 57.9
Cash dividends .038 .043 .043 .043
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Three Months ended, March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
Amount % Change Amount % Change Amount % Change Amount % Change
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues $ 2,048 16.5% $ 2,032 19.3% $ 2,196 29.2% $ 2,365 21.6%
Net earnings 196(2) 21.9 130 26.9 144 33.5 102(3) (12.2)
- ---------------------------------------------------------------------------------------------------------------------------
Per common share:
Net earnings (basic) $ .37(2) 23.3% $ .25 31.6% $ .27 35.0% $ .19(3) (13.6)%
Net earnings (diluted) .35(2) 20.7 .24 26.3 .26 30.0 .19(3) (9.5)
Cash dividends .033 .038 .038 .038
- ---------------------------------------------------------------------------------------------------------------------------
(1) Includes a benefit of $99 ($.19 per basic share, $.18 per diluted share) from the termination of a retirement liability
and realized investment loss of $58 ($.11 per basic and diluted share); (2) Includes gain of $67 ($.13 per basic share, $.12
per diluted share) due to a reduction in deferred tax liabilities from a tax rate cut in Japan; (3) Includes a charge of $41
($.08 per basic share, $.07 per diluted share) for the policyholder protection fund in Japan
Per-share amounts reflect the two-for-one stock split payable on March 16, 2001.
EXH 13-74
</TABLE>
21
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>7
<FILENAME>k00e21.txt
<DESCRIPTION>SUBSIDIARIES
<TEXT>
<PAGE>
EXHIBIT 21
EXH 21
<PAGE>
AFLAC INCORPORATED
SUBSIDIARIES
The following list sets forth the subsidiaries of AFLAC Incorporated:
Company Jurisdiction
------- ------------
AFLAC Insurance Service Japan
AFLAC Payment Service Japan
aflacdirect.com Japan
AFLAC International, Inc. Georgia
AFLAC Real Estate Holdings, Inc. Georgia
American Family Life Assurance Company of
Columbus (AFLAC) Georgia
American Family Life Assurance Company
of New York (AFLAC-NY) New York
Communicorp, Inc. Georgia
The above subsidiaries are 100% directly owned by AFLAC Incorporated,
except:
AFLAC-NY is 100% directly owned by AFLAC.
AFLAC Insurance Service and AFLAC Payment Service
are 100% directly owned by AFLAC International, Inc.
aflacdirect.com is 67% owned by AFLAC International, Inc.
EXH 21-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>8
<FILENAME>k00e23.txt
<DESCRIPTION>AUDITOR'S CONSENT
<TEXT>
<PAGE>
EXHIBIT 23
EXH 23
<PAGE>
KPMG LLP
Certified Public Accountants
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' CONSENT
The Shareholders and The Board of Directors
AFLAC Incorporated:
We consent to incorporation by reference in Registration Statement No.
33-64535 on Form S-3; 33-41552, 33-44720, 333-01243, 333-69333 and 333-27883
on Form S-8 and 333-78403 on Form S-4 of AFLAC Incorporated of our report
dated January 26, 2001, relating to the consolidated balance sheets of AFLAC
Incorporated and Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of earnings, shareholders' equity, cash
flows and comprehensive income for each of the years in the three-year
period ended December 31, 2000, which report appears in the December 31,
2000, annual report on Form 10-K of AFLAC Incorporated.
KPMG LLP
Atlanta, Georgia
March 28, 2001
EXH 23-1
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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