-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LHSp+TM27/nlxRxkChwMPzS1f4ucuEjQsSbZ2E4DKHjMPcuYLz40y1OSWu205OLe Zjropg9Px42AYytu/Na9HQ== /in/edgar/work/20000809/0000004977-00-000038/0000004977-00-000038.txt : 20000921 0000004977-00-000038.hdr.sgml : 20000921 ACCESSION NUMBER: 0000004977-00-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AFLAC INC CENTRAL INDEX KEY: 0000004977 STANDARD INDUSTRIAL CLASSIFICATION: [6321 ] IRS NUMBER: 581167100 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07434 FILM NUMBER: 689963 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 10-Q 1 0001.txt 2ND QUARTER FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the quarter ended June 30, 2000 Commission File No. 1-7434 AFLAC INCORPORATED ------------------------------------------------------ GEORGIA 58-1167100 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1932 WYNNTON ROAD, COLUMBUS, GEORGIA 31999 ----------------------------------------------------- (Address of principal executive offices and zip code) Registrant's telephone number, including area code (706) 323-3431 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class August 1, 2000 - ---------------------------- ------------------ Common Stock, $.10 Par Value 265,175,340 shares AFLAC INCORPORATED AND SUBSIDIARIES INDEX Page No. ---- Part I. Financial Information: Item 1. Financial Statements Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 . . . . . . . . . . 1 Consolidated Statements of Earnings - Three Months Ended June 30, 2000 and 1999 Six Months Ended June 30, 2000 and 1999. . . . . . . . . 3 Consolidated Statements of Shareholders' Equity - Six Months Ended June 30, 2000 and 1999. . . . . . . . . 5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999. . . . . . . . . 6 Consolidated Statements of Comprehensive Income - Three Months Ended June 30, 2000 and 1999 Six Months Ended June 30, 2000 and 1999. . . . . . . . . 8 Notes to Consolidated Financial Statements . . . . . . . . 9 Review by Independent Certified Public Accountants. . . . . . . . . . . . . . . . . . . . . . . 16 Independent Auditors' Report . . . . . . . . . . . . . . . 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . . . . . . . . . . . . . . 31 Part II. Other Information: Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 34 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 34 Items other than those listed above are omitted because they are not required or are not applicable. i Part I. Financial Information AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets (In millions) June 30, December 31, 2000 1999 (Unaudited) ----------- ------------ ASSETS: Investments and cash: Securities available for sale, at fair value: Fixed maturities (amortized cost, $20,663 in 2000 and $18,896 in 1999) $ 22,501 $ 20,859 Perpetual debentures (amortized cost, $2,519 in 2000 and $2,564 in 1999) 2,148 2,024 Equity securities (cost, $156 in 2000 and $137 in 1999) 239 215 Securities held to maturity, at amortized cost: Fixed maturities (fair value, $4,074 in 2000 and $4,280 in 1999) 4,020 4,389 Perpetual debentures (fair value, $3,684 in 2000 and $3,732 in 1999) 3,766 3,903 Other investments 16 18 Cash and cash equivalents 967 616 -------- -------- Total investments and cash 33,657 32,024 Receivables, primarily premiums 286 270 Accrued investment income 395 369 Deferred policy acquisition costs 3,756 3,692 Property and equipment, at cost less accumulated depreciation 497 509 Other 203 177 -------- -------- Total assets $ 38,794 $ 37,041 ======== ======== See the accompanying Notes to Consolidated Financial Statements. (continued) 1 AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Balance Sheets (continued) (In millions, except for share and per-share amounts) June 30, December 31, 2000 1999 (Unaudited) ----------- ----------- Liabilities and Shareholders' Equity: Liabilities: Policy liabilities: Future policy benefits $ 27,557 $ 27,310 Unpaid policy claims 1,726 1,618 Unearned premiums 362 361 Other policyholders' funds 322 315 -------- -------- Total policy liabilities 29,967 29,604 Notes payable 1,097 1,111 Income taxes 1,705 1,511 Payables for return of cash collateral on loaned securities 880 - Payables for security transactions 119 3 Other 865 944 -------- -------- Total liabilities 34,633 33,173 -------- -------- Shareholders' equity: Common stock of $.10 par value. In thousands: authorized 1,000,000 shares; issued 321,924 shares in 2000 and 320,349 shares in 1999 32 32 Additional paid-in capital 324 310 Retained earnings 3,672 3,356 Accumulated other comprehensive income: Unrealized foreign currency translation gains 182 232 Unrealized gains on investment securities 1,155 1,032 Treasury stock, at average cost (1,204) (1,094) -------- -------- Total shareholders' equity 4,161 3,868 -------- -------- Total liabilities and shareholders' equity $ 38,794 $ 37,041 ======== ======== Shareholders' equity per share $ 15.69 $ 14.56 ======== ======== See the accompanying Notes to Consolidated Financial Statements. 2 AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Statements of Earnings
(In millions, except for share and Three Months Ended June 30, Six Months Ended June 30, per-share amounts - Unaudited) ---------------------------- --------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Premiums, principally supplemental health insurance $ 2,054 $ 1,706 $ 4,073 $ 3,434 Net investment income 385 325 761 645 Realized investment gains (losses) (91) (5) (94) (9) Other income 10 6 16 9 ------- ------- ------- ------- Total revenues 2,358 2,032 4,756 4,079 ------- ------- ------- ------- Benefits and expenses: Benefits and claims 1,650 1,380 3,270 2,780 Acquisition and operating expenses: Amortization of deferred policy acquisition costs 77 64 146 121 Insurance commissions 258 220 513 445 Insurance expenses 193 151 382 293 Interest expense 5 5 10 8 Release of retirement liability (101) - (101) - Other operating expenses 17 15 33 32 ------- ------- ------- ------- Total acquisition and operating expenses 449 455 983 899 ------- ------- ------- ------- Total benefits and expenses 2,099 1,835 4,253 3,679 ------- ------- ------- ------- Earnings before income taxes 259 197 503 400 ------- ------- ------- ------- Income tax expense (benefit): Operations 57 67 145 141 Deferred tax benefit from Japanese tax rate reduction - - - (67) ------- ------- ------- ------- Total income taxes 57 67 145 74 ------- ------- ------- ------- Net earnings $ 202 $ 130 $ 358 $ 326 ======= ======= ======= ======= (continued on next page) 3
AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Statements of Earnings
(In millions, except for share and Three Months Ended June 30, Six Months Ended June 30, per-share amounts - Unaudited) ---------------------------- --------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net earnings per share: Basic $ .76 $ .49 $ 1.35 $ 1.23 Diluted .74 .47 1.31 1.18 ======= ======= ======= ======= Shares used in computing earnings per share (In thousands): Basic 265,571 265,818 265,585 265,965 Diluted 272,431 275,969 272,346 276,368 ======= ======= ======= ======= Cash dividends per share $ .085 $ .075 $ .16 $ .14 ======= ======= ======= ======= See the accompanying Notes to Consolidated Financial Statements. 4
AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity (In millions, except for per-share amounts - Unaudited) Six Months Ended June 30, ---------------------------- 2000 1999 ------ ------ Common Stock: Balance at beginning and end of period $ 32 $ 32 ------ ------ Additional paid-in capital: Balance at beginning of year 310 235 Exercise of stock options, including income tax benefits 11 9 Gain on treasury stock reissued 3 8 ------ ------ Balance at end of period 324 252 ------ ------ Retained earnings: Balance at beginning of year 3,356 2,862 Net earnings 358 326 Cash dividends ($.16 per share in 2000 and $.14 in 1999) (42) (37) ------ ------ Balance at end of period 3,672 3,151 ------ ------ Accumulated other comprehensive income: Balance at beginning of year 1,264 1,551 Change in unrealized foreign currency translation gains (losses) during period, net of income taxes (50) (12) Change in unrealized gains (losses) on investment securities during period, net of income taxes 123 (291) ------ ------ Balance at end of period 1,337 1,248 ------ ------ Treasury stock: Balance at beginning of year (1,094) (910) Purchases of treasury stock (133) (141) Cost of shares issued 23 19 ------ ------ Balance at end of period (1,204) (1,032) ------ ------ Total shareholders' equity $ 4,161 $ 3,651 ====== ====== See the accompanying Notes to Consolidated Financial Statements. 5 AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows (In millions - Unaudited) Six Months Ended June 30, 2000 1999 ------ ------ Cash flows from operating activities: Net earnings $ 358 $ 326 Adjustments to reconcile net earnings to net cash provided by operating activities: Increase in policy liabilities 1,359 1,232 Deferred income taxes 47 (27) Change in income taxes payable 103 (130) Increase in deferred policy acquisition costs (146) (133) Change in receivables and advance premiums (6) (7) Realized investment losses 94 9 Release of retirement liability (101) - Other, net (30) (2) ------ ------ Net cash provided by operating activities 1,678 1,268 ------ ------ Cash flows from investing activities: Proceeds from investments sold or matured: Securities available for sale: Fixed-maturity securities sold 400 718 Fixed-maturity securities matured 215 164 Equity securities 22 42 Securities held to maturity: Fixed-maturity securities matured - 9 Other investments, net (1) - Costs of investments acquired: Securities available for sale: Fixed-maturity securities (2,559) (1,588) Perpetual debentures (21) (804) Equity securities (116) (38) Securities held to maturity: Fixed-maturity securities - (41) Investment in new subsidiary (8) - Cash received as collateral on loaned securities 880 - Additions to property and equipment, net (11) (9) ------ ------ Net cash used by investing activities $(1,199) $(1,547) ------ ------ (continued) 6 AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Statements of Cash Flows (continued) (In millions - Unaudited) Six Months Ended June 30, 2000 1999 ------ ------ Cash flows from financing activities: Proceeds from borrowings $ 15 $ 446 Principal payments under debt obligations - (3) Dividends paid to shareholders (39) (35) Purchases of treasury stock (133) (141) Treasury stock reissued 19 18 Other, net 10 11 ------ ------ Net cash used by financing activities (128) 296 ------ ------ Effect of exchange rate changes on cash and cash equivalents - (13) ------ ------ Net change in cash and cash equivalents 351 4 Cash and cash equivalents, beginning of year 616 374 ------ ------ Cash and cash equivalents, end of period $ 967 $ 378 ====== ====== Supplemental disclosures of cash flow information: Cash payments during the period for: Interest on debt obligations $ 11 $ 6 Income taxes 78 254 Non-cash financing activities: Capital lease obligations 4 4 Treasury shares issued for: Dividends to shareholders 3 2 Associates stock bonus plan 4 7 See the accompanying Notes to Consolidated Financial Statements. 7 AFLAC INCORPORATED AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In millions - Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- --------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net earnings $ 202 $ 130 $ 358 $ 326 ------- ------- ------- ------- Other comprehensive income, before income taxes: Foreign currency translation adjustments: Change in unrealized foreign currency translation gains (losses) during the period (4) (7) 28 17 Unrealized gains (losses) on investment securities: Unrealized holding gains (losses) arising during the period (135) (358) 97 (453) Reclassification adjustment for realized (gains) losses included in net earnings 92 5 93 9 ------- ------- ------- ------- Total other comprehensive income, before income taxes (47) (360) 218 (427) Income tax expense (benefit) related to items of other comprehensive income 5 (151) 145 (124) ------- ------- ------- ------- Other comprehensive income (loss), net of income taxes (52) (209) 73 (303) ------- ------- ------- ------- Total comprehensive income (loss) $ 150 $ (79) $ 431 $ 23 ======= ======= ======= ======= See the accompanying Notes to Consolidated Financial Statements. 8
AFLAC INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Basis of Presentation In the opinion of management, the accompanying unaudited consolidated financial statements of AFLAC Incorporated and subsidiaries (the "Company") contain all adjustments necessary to fairly present the financial position as of June 30, 2000, and the results of operations and statements of comprehensive income for the three and six month periods ended June 30, 2000 and 1999, and statements of cash flows and shareholders' equity for the six months ended June 30, 2000 and 1999. Results of operations for interim periods are not necessarily indicative of results for the entire year. 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. The financial statements should be read in conjunction with the financial statements included in our annual report to shareholders for the year ended December 31, 1999. 2. Accounting Pronouncements SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was issued in June 1998. 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. Currently, we do not expect a material effect on the results of operations or financial position upon adoption of this standard on January 1, 2001. 9 3. Segment Information Information regarding components of operations for the three and six months ended June 30 follows: (In millions) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Total revenues: AFLAC Japan: Earned premiums $ 1,676 $ 1,372 $ 3,322 $ 2,770 Net investment income 314 262 621 524 Other income 6 1 5 1 ------- ------- ------- ------- Total AFLAC Japan revenues 1,996 1,635 3,948 3,295 ------- ------- ------- ------- AFLAC U.S.: Earned premiums 377 334 751 664 Net investment income 68 59 135 117 Other income 2 1 2 1 ------- ------- ------- ------- Total AFLAC U.S. revenues 447 394 888 782 ------- ------- ------- ------- Other business segments 7 5 13 11 ------- ------- ------- ------- Total business segments 2,450 2,034 4,849 4,088 Realized investment gains (losses) (91) (5) (94) (9) Corporate 7 11 17 17 Intercompany eliminations (8) (8) (16) (17) ------- ------- ------- ------- Total $ 2,358 $ 2,032 $ 4,756 $ 4,079 ======= ======= ======= ======= Earnings before income taxes: AFLAC Japan $ 191 $ 152 $ 379 $ 310 AFLAC U.S. 71 63 141 126 Other business segments (2) (1) (2) - ------- ------- ------- ------- Total business segments 260 214 518 436 Realized investment gains (losses) (91) (5) (94) (9) Release of retirement liability 101 - 101 - Interest expense, non-insurance operations (4) (4) (8) (7) Corporate (7) (8) (14) (20) ------- ------- ------- ------- Total $ 259 $ 197 $ 503 $ 400 ======= ======= ======= ======= 10 Total assets were as follows: June 30, December 31, (In millions) 2000 1999 ---------- ----------- Total assets: AFLAC Japan $ 33,941 $ 32,274 AFLAC U.S. 4,633 4,448 Other business segments 32 34 -------- -------- Total business segments 38,606 36,756 Corporate 5,458 5,213 Intercompany eliminations (5,270) (4,928) -------- -------- Total $ 38,794 $ 37,041 ======== ======== 4. Japanese Income Taxes At the end of March 1999, the Japanese government reduced the Japanese corporate income tax rate from 41.7% to 36.2%, which increased net earnings for the first six months of 1999 by $67 million ($.25 per basic share, $.24 per diluted share) from the reduction of our consolidated deferred income tax liability as of March 31, 1999. This was the net effect of recalculating Japanese deferred income taxes at the new 36.2% rate on the temporary differences between the financial reporting basis of AFLAC Japan's assets and liabilities, reduced by the limitations in the U.S. foreign tax credit provisions. The 1999 rate reduction for AFLAC Japan was effective April 1, 1999, for purposes of calculating income tax expense on operating earnings. 5. Notes Payable A summary of notes payable is as follows: June 30, December 31, (In millions) 2000 1999 ---------- ------------ 1.67% yen-denominated senior notes due April 2009 $ 525 $ 541 Unsecured, yen-denominated notes payable to banks: Reducing, revolving credit agreement, due annually through July 2001: 2.29% fixed interest rate 215 222 Variable interest rate (.39% at June 30, 2000) 30 31 Revolving credit agreement due November 2002: 1.24% fixed interest rate 110 114 Variable interest rate (.34% at June 30, 2000) 134 138 .34% short term 44 45 7.04% unsecured short-term dollar-denominated note payable to bank 15 - Obligations under capitalized leases, due monthly through 2004, secured by computer equipment in Japan 24 20 ------ ------ Total notes payable $ 1,097 $ 1,111 ====== ====== 11 In April 1999, we issued $450 million of senior notes with a 6.50% coupon, payable semiannually, 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. At June 30, 2000, the outstanding principal was 55.6 billion yen ($527 million using the June 30, 2000 exchange rate), less loan discount of $2 million, for a net payable of $525 million at an interest rate of 1.67%. We have a reducing, revolving credit agreement that provides for bank borrowings through July 2001 in either U.S. dollars or Japanese yen. As of June 30, 2000, the borrowing limit was $250 million. Under the terms of the agreement, the borrowing limit reduced to $125 million on July 17, 2000. At June 30, 2000, 22.7 billion yen ($215 million) was outstanding at a fixed interest rate and 3.2 billion yen ($30 million) was outstanding at a variable interest rate under this agreement. On July 17, 2000 we made a principal payment in the amount of 12.9 billion yen ($119 million) related to the reducing, revolving credit agreement. We also paid in full (4.6 billion yen, or $44 million) the .34% short-term yen-denominated note payable. 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 June 30, 2000, 11.6 billion yen ($110 million) was outstanding at a fixed interest rate and 14.2 billion yen ($134 million) was outstanding at a variable interest rate under this agreement. Since these loans are denominated in yen, the principal amount of the loans as stated in dollar terms at any date will fluctuate due to changes in the yen/dollar exchange rate. We have outstanding interest rate swaps on a portion of our variable interest rate yen-denominated borrowings (34.3 billion yen). 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 (.23% at June 30, 2000 plus loan costs of 25 or 20 basis points, respectively) based on the three-month Tokyo Interbank Offered Rate. We have designated our yen-denominated borrowings 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 the yen-denominated borrowings were translated into dollars at end-of-period exchange rates. Interest expense was translated at average exchange rates for the period the interest expense was incurred. 12 6. Investment Securities Net unrealized gains and losses on investment 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 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. The net effect on shareholders' equity of unrealized gains and losses from investment securities at the following dates was: (In millions) June 30, December 31, 2000 1999 ------------ ------------ Unrealized gains on securities available for sale $ 1,550 $ 1,501 Unamortized unrealized gains on securities transferred on October 1, 1998 to held to maturity 1,148 1,258 Less: Policy liabilities 589 840 Deferred income taxes 954 887 --------- --------- Shareholders' equity, net unrealized gains on investment securities $ 1,155 $ 1,032 ========= ========= The issuers of two debt securities experienced significant credit rating downgrades during the period. During the second quarter of 2000, we sold one security carried in available-for-sale at a realized loss of $34 million. We recorded an 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 decreased net earnings by $58 million ($.22 per basic share and $.21 per diluted share) for the three months and six months ended June 30, 2000. 7. Security Lending AFLAC Japan uses short-term security lending arrangements to increase investment income with minimal risk. At June 30, 2000, and December 31, 1999, we had security loans outstanding in the amounts of $851 million and $2.4 billion at fair value, respectively. We receive cash or other securities as collateral for such loans. At June 30, 2000, we held cash collateral of $880 million for loaned securities in the amount of $851 million. Also at December 31, 1999, we held Japanese government bonds as collateral for loaned securities in the amount of $2.4 billion, at fair value. 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. 13 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 involving securities as collateral, the collateral is not recorded as an asset or liability. 8. Common Stock The following is a reconciliation of the number of shares of our common stock for the six months ended June 30: 2000 1999 (In thousands of shares) ---------- ---------- Common stock - issued: Balance at beginning of year 320,349 317,971 Exercise of stock options 1,575 1,295 -------- -------- Balance at end of period 321,924 319,266 -------- -------- Treasury stock: Balance at beginning of year 54,608 52,287 Purchases of treasury stock: Open market 3,105 2,550 Other 88 145 Shares issued to sales associates stock bonus plan and AFL Stock Plan (364) (407) Exercise of stock options (724) (751) -------- -------- Balance at end of period 56,713 53,824 -------- -------- Shares outstanding at end of period 265,211 265,442 ======== ======== For the six months ended June 30, 2000, there were approximately 937,000 weighted average shares for outstanding stock options that were not included in the computation of diluted earnings per share because the exercise price for these options was greater than the average market price during the first six months of 2000. On May 1, 2000 the shareholders approved an increase in the number of authorized shares from 400 million to 1 billion. 9. 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. 14 10. Release of Retirement Liability 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. On May 3, 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 $99 million ($.37 per basic share, $.36 per diluted share) for the three months and six months ended June 30, 2000. 15 REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The June 30, 2000 and 1999 financial statements included in this filing have been reviewed by KPMG LLP, independent certified public accountants, in accordance with established professional standards and procedures for such a review. The report of KPMG LLP commenting upon their review is included on page 17. 16 KPMG LLP Certified Public Accountants 303 Peachtree Street, N.E. Telephone: (404) 222-3000 Suite 2000 Telefax: (404) 222-3050 Atlanta, GA 30308 INDEPENDENT AUDITORS' REVIEW REPORT The Shareholders and Board of Directors AFLAC Incorporated: We have reviewed the consolidated balance sheet of AFLAC Incorporated and subsidiaries as of June 30, 2000, and the related consolidated statements of earnings and comprehensive income for the three-month and six-month periods ended June 30, 2000 and 1999, and the consolidated statements of shareholders' equity and cash flows for the six-month periods ended June 30, 2000 and 1999. These consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the accompanying consolidated balance sheet of AFLAC Incorporated and subsidiaries as of December 31, 1999, and the related consolidated statements of earnings, shareholders' equity, cash flows and comprehensive income for the year then ended (not presented herein); and in our report dated January 27, 2000, we expressed an unqualified opinion on those financial statements. KPMG LLP Atlanta, GA July 25, 2000 17 ITEM 2. 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 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 business in Japan (AFLAC Japan) and the United States (AFLAC U.S.) service the two markets for our insurance operations. RESULTS OF OPERATIONS Several significant non-operating items affected our net earnings during 2000 and 1999. In the second quarter of 2000, a release of an accrued unfunded liability for projected retirement payments increased net earnings by $99 million ($.37 per basic share, $.36 per diluted share) for the three months and six months ended June 30, 2000. (See Note 10 of the Notes to the Consolidated Financial Statements.) Also during the second quarter of 2000, realized investment losses on two debt securities from significant credit downgrades decreased net earnings by $58 million ($.22 per basic share, $.21 per diluted share) for the three months and six months ended June 30, 2000. (See Note 6 of the Notes to the Consolidated Financial Statements.) Due to a corporate income tax rate reduction in Japan during 1999, the statutory tax rate for AFLAC Japan declined from 41.7% to 36.2%. This tax rate decline resulted in a reduction in our deferred income tax liability as of March 31, 1999, which increased net earnings by $67 million ($.25 per basic share and $.24 per diluted share) for the six months ended June 30, 1999. 18 The following table sets forth the results of operations by business segment for the periods shown.
SUMMARY OF OPERATING RESULTS BY BUSINESS SEGMENT (In millions, except for per-share amounts) Three Months Ended June 30, Six Months Ended June 30, ----------------------------------------- ----------------------------------------- Percentage Change 2000 1999 Percentage Change 2000 1999 ----------------- ------------------ ----------------- ------------------ Operating earnings: AFLAC Japan. . . . . . . . . . . . 25.7% $ 191 $ 152 22.3% $ 379 $ 310 AFLAC U.S. . . . . . . . . . . . . 12.3 71 63 11.9 141 126 Other business segments. . . . . . (2) (1) (2) - ----- ----- ----- ----- Total business segments. . . . . 21.7 260 214 18.9 518 436 Interest expense, non-insurance operations . . . . (1.8) (4) (4) (22.2) (8) (7) Corporate and eliminations . . . . 22.7 (6) (9) 26.0 (15) (20) ----- ----- ----- ----- Pretax operating earnings. . . . 23.9 250 201 21.1 495 409 Income taxes . . . . . . . . . . . 24.3 89 71 19.7 175 147 ----- ----- ----- ----- Operating earnings . . . . . . . 23.7 161 130 21.9 320 262 Non-operating items: Realized investment gains (losses), net of tax . . . . . . (58) - (61) (3) Release of retirement liability, net of tax . . . . . . . . . . . 99 - 99 - Deferred tax benefit from Japanese tax rate reduction . . . . . . . - - - 67 ----- ----- ----- ----- Net earnings . . . . . . . . . . 54.8% $ 202 $ 130 9.9% $ 358 $ 326 ===== ===== ===== ===== Operating earnings per basic share . 24.5% $ .61 $ .49 21.2% $ 1.20 $ .99 Operating earnings per diluted share 25.5 .59 .47 23.2 1.17 .95 ===== ===== ===== ===== Net earnings per basic share . . . . 55.1% $ .76 $ .49 9.8% $ 1.35 $ 1.23 Net earnings per diluted share . . . 57.4 .74 .47 11.0 1.31 1.18 ===== ===== ===== ===== =========================================================================================================================== 19
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, and the deferred income tax benefit from the Japanese tax rate reduction in 1999. Operating earnings per share referred to in the following discussion are based on the diluted number of average outstanding shares. 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 on our reported results by comparing those results as if foreign currency rates had remained unchanged from the comparable period in the prior year. AFLAC Incorporated and Subsidiaries Selected Percentage Changes for Supplemental Consolidated Data (For the periods ended June 30, 2000) Three Months Six Months Operating Results Operating Results --------------------- --------------------- Including Excluding Including Excluding Currency Currency Currency Currency Changes Changes* Changes Changes* --------- --------- --------- --------- Premium income 20.4% 8.7% 18.6% 8.9% Net investment income 18.4 10.0 18.0 11.0 Operating revenues 20.3 9.2 18.6 9.4 Total benefits and expenses 19.9 8.3 18.3 8.7 Operating earnings 23.7 17.6 21.9 16.7 Operating earnings per share 25.5 19.1 23.2 17.9 - ---------------------------------------------------------------------------- *Amounts excluding foreign currency changes were determined using the same yen/dollar exchange rate for the current period as the comparable period in the prior year. ============================================================================ The yen began to strengthen in relation to the dollar at the end of 1998 after several years of weakening. The average yen-to-dollar exchange rates were 106.69 and 121.01 for the three months ended June 30, 2000 and 1999, and 106.91 and 118.80 for the six months ended June 30, 2000 and 1999, respectively. The strengthening of the yen in 2000 increased operating earnings by approximately $.03 per share for the three months ended June 30, 2000, and $.05 per share for the six months ended June 30, 2000. Operating earnings per share increased 25.5% to $.59 for the three-month period ended June 30, 2000, compared with the same period in 1999 and increased 23.2% to $1.17 for the six-month period ended June 30, 2000, compared with the same period in 1999. Operating earnings per share, excluding the effect of foreign currency translation, increased 19.1% for the quarter and 17.9% for the six months ended June 30, 2000. 20 Our primary financial objective is the growth of operating earnings per share before the effect of foreign currency fluctuations. Our objective for 2000 through 2002 is to increase operating earnings per share growth by 15% to 17%, excluding the impact of currency translation. If we achieve a 17% increase, the following table shows the likely results for operating earnings per share for the year 2000 when the estimated impact from various foreign currency translations are included. 2000 Operating EPS Scenarios ---------------------------- Annual Average Yen Annual Operating % Growth Yen Impact Exchange Rate Diluted EPS Over 1999 on EPS ------------- ---------------- --------- ---------- 100.00 $ 2.48 24.0% $ .14 105.00 2.42 21.0 .08 110.00 2.38 19.0 .04 113.96* 2.34 17.0 - 115.00 2.33 16.5 (.01) 120.00 2.29 14.5 (.05) 125.00 2.25 12.5 (.09) *Actual exchange rate for the year ended December 31, 1999. If the exchange rate as of June 30, 2000, remains constant for the rest of 2000, the cumulative average rate would be approximately 106.21 and the annual diluted operating earnings per share would approximate $2.41, assuming we achieve the high end of our earnings objective. SHARE REPURCHASE PROGRAM During the second quarter, we acquired 1.1 million shares of AFLAC stock, bringing the total number of shares purchased in the first six months to 3.1 million. On May 1, 2000, the board of directors authorized the repurchase of up to an additional 10 million shares. At the end of June, we had approximately 10 million shares available for repurchase. INCOME TAXES Our combined U.S. and Japanese effective income tax rates on operating earnings for the six months ended June 30, 2000 and 1999 were 35.4% and 35.9%, respectively. Income tax expense for 1999 included approximately $2 million of additional taxes from an income tax audit in Japan. Excluding that amount, the effective income tax rate on operating earnings for 1999 was 35.4%. The 1999 reduction in the statutory tax rate in Japan did not significantly change our combined U.S./Japan effective tax rate as it shifted a portion of our income tax expense from Japan operations to U.S. operations as a result of the U.S. foreign tax credit provisions. 21 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 ranks second in terms of individual policies in force and 14th based on assets. The following table presents a summary of AFLAC Japan's operating results. AFLAC JAPAN SUMMARY OF OPERATING RESULTS Three Months Ended Six Months Ended June 30, June 30, (In millions) 2000 1999 2000 1999 ------------------ ------------------ Premium income. . . . . . . . . $ 1,676 $ 1,372 $ 3,322 $ 2,770 Investment income . . . . . . . 314 262 621 524 Other income. . . . . . . . . . 6 1 5 1 ------ ------ ------ ------ Total revenues. . . . . . . . 1,996 1,635 3,948 3,295 ------ ------ ------ ------ Benefits and claims . . . . . . 1,414 1,172 2,799 2,367 Operating expenses. . . . . . . 391 311 770 618 ------ ------ ------ ------ Total benefits and expenses . 1,805 1,483 3,569 2,985 ------ ------ ------ ------ Pretax operating earnings . $ 191 $ 152 $ 379 $ 310 ====== ====== ====== ====== - ---------------------------------------------------------------------------- Percentage changes in dollars over previous period: Premium income. . . . . . . . 22.2% 21.5% 19.9% 19.9% Investment income . . . . . . 20.0 18.6 18.5 17.2 Total revenues. . . . . . . . 22.1 21.1 19.8 19.5 Pretax operating earnings . . 25.7 27.9 22.3 27.0 - ---------------------------------------------------------------------------- Percentage changes in yen over previous period: Premium income. . . . . . . . 7.7% 8.3% 7.9% 8.0% Investment income . . . . . . 5.8 5.5 6.6 5.5 Total revenues. . . . . . . . 7.6 7.9 7.8 7.6 Pretax operating earnings . . 10.8 13.6 10.0 14.3 - ---------------------------------------------------------------------------- Ratios to total revenues: Benefits and claims . . . . . 70.9% 71.7% 70.9% 71.8% Operating expenses. . . . . . 19.5 19.0 19.5 18.8 Pretax operating earnings . . 9.6 9.3 9.6 9.4 ============================================================================ 22 AFLAC JAPAN SALES AFLAC Japan's new annualized premium sales in 2000 were strong and exceeded our expectations. New sales in the second quarter rose 5.1% to a record 25.4 billion yen, or $233 million. Comparisons to last year were difficult due to the 30.6% surge we experienced in 1999 second-quarter sales. The year-ago results benefited from additional sales campaigns that were conducted in advance of a premium rate increase. For the first half of 2000, new sales increased 10.6% to 47.7 billion yen, or $441 million. Rider MAX continued to sell very well. During the second quarter, we sold 371,600 of these popular riders to our cancer life policy and 59% of new cancer life insurance customers also purchased Rider MAX. We were also pleased with the sales of our ordinary life products, which accounted for 9.6% of sales during the quarter. In addition to strong sales, we are also seeing continued growth of our distribution system in Japan. During the second quarter, we recruited 581 new agencies, bringing the total number of agencies representing AFLAC to more than 8,800 at the end of the quarter. We believe that new agencies will continue to be attracted to AFLAC Japan's high commissions and its superior products, customer service and brand image. In 2001, Japan's insurance market will further deregulate. As a result, we expect competition to increase. At the same time, we also expect increased opportunities for AFLAC Japan. To prepare for deregulation, we will continue building on our competitive strengths. To that end, we plan on improving the products we offer, while adding new policies to our product line. We will continue to expand our distribution system through the addition of new agencies as well as alternative sales channels like the Internet. And we will also invest in new technologies to maintain our cost advantages and aggressively promote our brand through advertising. In July 2000, we began offering a new optional commission contract which pays a higher first year commission, but limits renewal commissions to nine years rather than the life of the contract. Other changes we have made to our business recently, including our laptop computer sales aid, new products and aggressive recruiting, are all part of our plan for helping us succeed in a deregulated environment. We recognize that we will face more competition in the future, and we continue to look for ways to improve. At the same time, companies that enter the third sector will find it difficult to compete with us because of our low-cost structure. Although Japan's economy remains weak, we continue to believe it is one of the best insurance markets in the world and one of great opportunities for growth. We have set an objective for AFLAC Japan's sales to increase approximately 12% to 15% for the year 2000 compared with 1999. AFLAC JAPAN INVESTMENTS With investment yields remaining at very depressed levels, Japan's investment environment continued to present challenges. During the second quarter, the yield of a composite index of 20-year Japanese government bonds averaged only 2.11%. However, by focusing on other sectors, we purchased yen-denominated securities at an average yield of 3.37% in the quarter. Including dollar-denominated investments, our blended new money yield was 23 3.56% for the quarter. As of July 14, we had invested or committed to invest approximately 70% of our estimated cash flow for the year 2000 at an average yield of 3.85%, which is significantly greater than our reserving assumptions for new business. At the end of the second quarter, the yield on AFLAC Japan's fixed- maturity portfolio was 5.07%, compared with 5.24% at the end of 1999. The return on average invested assets, net of investment expenses, was 4.83% for the six months, compared with 5.04% a year ago. AFLAC JAPAN OTHER The operating expense ratio has increased slightly due to expenditures for additional marketing programs, including advertising and direct response efforts. The benefit ratio has declined due to the mix of business shifting to newer products that have a lower loss ratio than the traditional cancer life insurance. 24 INSURANCE OPERATIONS, AFLAC U.S. The following table presents a summary of AFLAC U.S. operating results. AFLAC U.S. SUMMARY OF OPERATING RESULTS Three Months Ended Six Months Ended June 30, June 30, (In millions) 2000 1999 2000 1999 ------------------ ------------------ Premium income. . . . . . . . . $ 377 $ 334 $ 751 $ 664 Investment income . . . . . . . 68 59 135 117 Other income. . . . . . . . . . 2 1 2 1 ----- ----- ----- ----- Total revenues. . . . . . . . 447 394 888 782 ----- ----- ----- ----- Benefits and claims . . . . . . 236 208 471 413 Operating expenses. . . . . . . 140 123 276 243 ----- ----- ----- ----- Total benefits and expenses . 376 331 747 656 ----- ----- ----- ----- Pretax operating earnings . $ 71 $ 63 $ 141 $ 126 ===== ===== ===== ===== - ---------------------------------------------------------------------------- Percentage increases over previous period: Premium income. . . . . . . . 13.0% 14.0% 13.2% 13.9% Investment income . . . . . . 14.4 11.2 14.8 12.0 Total revenues. . . . . . . . 13.3 13.5 13.5 13.4 Pretax operating earnings . . 12.3 13.8 11.9 12.6 - ---------------------------------------------------------------------------- Ratios to total revenues: Benefits and claims . . . . . 52.8% 52.7% 53.0% 52.7% Operating expenses. . . . . . 31.3 31.2 31.1 31.2 Pretax operating earnings . . 15.9 16.1 15.9 16.1 ============================================================================ AFLAC U.S. SALES New annualized premium sales rose 28.5% in the second quarter to a record $168 million. For the six months, new sales were up 24.5% to $318 million. Accident/disability insurance was again the dominant contributor to sales, as it has been for the past six years. In addition, accident/disability insurance surpassed our founding product, cancer expense insurance, in the quarter to become our number one product category in terms of premiums in force. We also experienced strong sales contributions from other product lines, including cancer expense insurance. Our payroll life products continued to sell very well, accounting for more than 5% of sales for the first six months of the year. Based on our strong sales for the first half of the year, we have raised our new sales target for 2000 from a 12% to 15% increase to a 17% to 20% increase for the year. AFLAC U.S. also experienced strong sales force growth. During the second quarter, the monthly average number of producing sales associates increased 18.1%, to 10,170 agents. We believe the rapid growth in our distribution system and sales demonstrates the effectiveness of our marketing approach and our most recent advertising campaign. 25 Technology continues to play an important role at AFLAC U.S. In addition to the continued success of our electronic sales system, SmartApp, we are also pursuing additional technological initiatives. Internet billing provides our small- to medium-sized payroll accounts with access to their own payroll billing in a secured Internet platform. They can complete administrative tasks such as deleting individuals or making address changes online, which are our most requested items. In July 2000, we introduced Internet billing in California. The initial rollout began with the training of more than 500 sales associates and coordinators in that area. We believe that Internet billing will accomplish our goals of improving service while lowering our expenses through technology. Savings from new electronic work processes have allowed us to invest heavily in national advertising, which has benefited our name recognition, recruiting and sales results. AFLAC U.S. INVESTMENTS During the first six months of 2000, available cash flow was invested at an average yield-to-maturity of 8.44% compared with 7.84% during the first half of 1999. The overall return on average invested assets, net of investment expenses, was 7.58% for the first six months of 2000 compared with 7.52% for the first six months of 1999. AFLAC U.S. OTHER Management expects the operating expense ratio, including discretionary television advertising expenses, to remain approximately level in the future. By improving administrative systems and controlling other costs, we have been able to redirect funds to national television advertising programs without significantly affecting the operating expense ratio. The aggregate benefit ratio has remained relatively stable. The mix of business has shifted toward accident and hospital indemnity policies, which have lower benefit ratios than other products. We expect future benefit ratios for some of our supplemental products to increase slightly due to our ongoing efforts to improve policy persistency and enhance policyholder benefits. Management expects the pretax operating profit margin to be approximately 16% for the full year 2000. FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS For information regarding new Statements of Financial Accounting Standards see Note 2 of the Notes to the Consolidated Financial Statements. ANALYSIS OF FINANCIAL CONDITION Since December 31, 1999, 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. Due to the significance of yen-denominated items in the balance sheet, changes in the yen/dollar exchange rate can have a significant effect on our financial statements. The yen/dollar exchange rate at the end of each 26 period is used to translate yen-denominated balance sheet items to U.S. dollars for reporting purposes. The exchange rate at June 30, 2000, was 105.50 yen to one U.S. dollar, 2.9% weaker than the exchange rate of 102.40 as of December 31, 1999. Management estimates that the weaker yen rate decreased reported investments and cash by $857 million, total assets by $971 million, and total liabilities by $955 million compared with the amounts that would have been reported for 2000 if the exchange rate had remained unchanged from year-end 1999. INVESTMENTS AND CASH The continued growth in investments and cash reflects the substantial cash flows in the functional currencies of our operations. Net unrealized gains of $1.5 billion on investment securities at June 30, 2000, consisted of $2.8 billion in gross unrealized gains and $1.3 billion in gross unrealized losses. AFLAC invests primarily within the Japanese, U.S. and Euroyen debt securities markets. 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, were as follows: June 30, December 31, 2000 1999 ----------- ------------ AAA 26.1% 28.0% AA 22.6 24.6 A 35.6 33.5 BBB 15.3 12.1 BB .4 1.8 ----- ----- 100.0% 100.0% ===== ===== The issuers of two debt securities experienced significant credit rating downgrades during the period. During the second quarter of 2000, we sold one security carried in available-for-sale at a realized loss of $34 million. We recorded an 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 decreased net earnings by $58 million ($.22 per basic share and $.21 per diluted share) for the three months and six months ended June 30, 2000. Private placement investments accounted for 51.2% and 49.0% of our total debt securities at amortized cost as of June 30, 2000 and December 31, 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 historically conservative standards for credit quality. We require that all private placement issuers have an initial rating of Class 1 or 2 as determined by the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC). Most of AFLAC's private placement issues are issued 27 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. The following table shows an analysis of investment securities (at cost or amortized cost): AFLAC Japan AFLAC U.S. ---------------------- ---------------------- June 30, December 31, June 30, December 31, (In millions) 2000 1999 2000 1999 ---------------------- ---------------------- Available for sale: Fixed-maturity securities $17,268 $15,491 $ 3,395* $ 3,405* Perpetual debentures 2,345 2,411 174 153 Equity securities 58 45 98 92 ------ ------ ------ ------ Total available for sale 19,671 17,947 3,667 3,650 ------ ------ ------ ------ Held to maturity: Fixed-maturity securities 4,020 4,389 - - Perpetual debentures 3,766 3,903 - - ------ ------ ------ ------ Total held to maturity 7,786 8,292 - - ------ ------ ------ ------ Total $27,457 $26,239 $ 3,667 $ 3,650 ====== ====== ====== ====== *Includes securities held by the parent company of $116 at June 30, 2000, and $240 at December 31, 1999 POLICY LIABILITIES Policy liabilities increased $363 million, or 1.2%, during the first six months of 2000. AFLAC Japan increased $243 million, or .9% (3.9% increase in yen), and AFLAC U.S. increased $120 million, or 5.2%. Changes in policy liabilities were primarily due to the addition of new business, the aging of policies in force, the weaker yen and the effect of the market value adjustment for securities available for sale (see Note 6 of the Notes to the Consolidated Financial Statements). The weaker yen at June 30, 2000, compared with December 31, 1999, decreased reported policy liabilities by $834 million. DEBT In April 1999, we issued $450 million of senior notes with a 6.50% coupon, paid semiannually, due April 15, 2009. The notes are redeemable at our option and 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. These proceeds were temporarily invested in short-duration securities and are being used primarily to purchase shares of our common stock. The net proceeds may also be used to repay indebtedness or for general corporate purposes. We have entered into cross-currency swaps that 28 had the effect of converting the dollar-denominated principal and interest into yen-denominated obligations. At June 30, 2000, the outstanding principal was 55.6 billion yen ($527 million) at an interest rate of 1.67% after the effect of the cross-currency swaps. See Note 5 of the Notes to the Consolidated Financial Statements for information on other debt outstanding at June 30, 2000. Our ratio of debt to total capitalization (debt plus shareholders' equity, excluding the unrealized gains on investment securities) was 26.7% and 28.1% as of June 30, 2000 and December 31, 1999, respectively. After giving effect to the July 2000 principal payments, the ratio was 23.7%. SECURITY LENDING AFLAC Japan uses short-term security lending arrangements to increase investment income with minimal risk. For further information regarding such arrangements, see Note 7 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 U.S. currently involved in insolvency proceedings will not materially impact the consolidated financial statements. The Life Insurance Association of Japan, an industry organization, implemented a voluntary policyholder protection fund in 1996 to provide capital support to insolvent life insurers. AFLAC Japan pledged investment securities to the Life Insurance Association of Japan under this program. A separate, mandatory policyholder protection system was enacted by the Japanese government during 1998. The life insurance industry is making contributions to these funds over a 10-year period. Our obligation to the mandated policyholder protection system was increased in 1999 due to the insolvency of Toho Mutual Life Insurance Company. We have recorded a liability for our share of these obligations. For further information regarding policyholder protection funds, see Note 2 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 1999. 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. Primary uses of cash in the 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 high-quality investment securities. 29 AFLAC insurance policies are generally 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 thus are 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. 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 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 computed 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. Currently, prescribed or permitted statutory accounting principles (SAP) used by insurers for financial reporting to state insurance regulators may vary among states and among companies. The NAIC has recodified SAP to promote standardization throughout the industry. The NAIC has scheduled these new accounting principles to become effective January 1, 2001. They must also be adopted by the individual state insurance departments. In addition to restrictions by U.S. insurance regulators, the Japanese Financial Supervisory Agency (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 $23 million in the first six months of 2000 and $20 million for the same period in 1999. AFLAC Japan repatriated profits in the amount of 17 billion yen ($157 million) to AFLAC U.S. in July 2000. 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 solvency standards, a version of risk-based capital requirements. AFLAC Japan's solvency margin significantly exceeds regulatory minimums. For additional information on regulatory restrictions on dividends, profit transfers and other remittances, see Note 9 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 1999. 30 OTHER In July 2000, the board of directors approved a quarterly cash dividend of $.085 per share. The dividend is payable on September 1, 2000, to shareholders of record at the close of business on August 17, 2000. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our financial instruments are exposed to primarily three types of market risks. These are interest rate, equity price, and foreign currency exchange rate risk. INTEREST RATE RISK Our primary interest rate exposure is a result of 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. 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. 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. At June 30, 2000, we had $1.4 billion of net unrealized gains on debt securities. The hypothetical reduction in the fair value of our debt securities resulting from a 100 basis point increase in market interest rates is estimated to be $2.9 billion based on our portfolio as of June 30, 2000. The effect on yen-denominated debt securities is approximately $2.5 billion and the effect on dollar-denominated debt securities is approximately $386 million. We have outstanding interest rate swaps on 34.3 billion yen ($325 million) of our variable-interest-rate yen-denominated borrowings. These swaps reduce the impact of fluctuations in interest rates on our 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. At June 30, 2000, we also had yen-denominated bank borrowings in the amount of 21.9 billion yen ($208 million) with a variable interest rate of .35%. 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 5 of the Notes to the Consolidated Financial Statements. 31 EQUITY PRICE RISK Equity securities at June 30, 2000, totaled $239 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 1.07. 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 10.7%, or $26 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 rather than converted into dollars. In addition to the yen-denominated financial instruments held by AFLAC Japan, AFLAC Incorporated has yen-denominated bank borrowings 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 has cross currency swaps on its $450 million senior notes. We have entered into cross currency swaps to convert the dollar- denominated principal and interest into yen-denominated obligations. These swaps have 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. 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 table on the following page compares the U.S. dollar values of our yen- denominated assets and liabilities at various exchange rates. 32 Dollar Value of Yen-Denominated Assets and Liabilities At Selected Exchange Rates (June 30, 2000) 90.50 105.50* 120.50 (In millions) Yen Yen Yen - ---------------------------------------------------------------------------- Yen-denominated financial instruments: Assets: Securities available for sale: Fixed maturities $ 20,622 $ 17,690 $ 15,488 Perpetual debentures 2,130 1,827 1,599 Equity securities 85 73 64 Securities held to maturity: Fixed maturities 4,686 4,020 3,519 Perpetual debentures 4,390 3,766 3,297 Cash and cash equivalents 1,063 912 799 Other financial instruments 6 4 5 ------- ------- ------- Total 32,982 28,292 24,771 ------- ------- ------- Liabilities - notes payable 1,235 1,059 927 ------- ------- ------- Net yen-denominated financial instruments 31,747 27,233 23,844 Other yen-denominated assets 4,419 3,791 3,319 Other yen-denominated liabilities (35,553) (30,498) (26,703) ------- ------- ------- Consolidated yen-denominated net assets subject to foreign currency fluctuation $ 613 $ 526 $ 460 ======= ======= ======= * Actual June 30, 2000 exchange rate For information regarding the effect of foreign currency translation on operating earnings per share, see Foreign Currency Translation beginning on page 20. 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. 33 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, 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. PART II. OTHER INFORMATION Item 1. 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.0 - Articles of Incorporation - as amended 12.0 - Statement regarding the computation of ratio of earnings to fixed charges 27.0 - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the quarter ended June 30, 2000. Items other than those listed above are omitted because they are not required or are not applicable. 34 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AFLAC INCORPORATED Date August 9, 2000 /s/ KRISS CLONINGER, III ------------------------ --------------------------- KRISS CLONINGER,III Executive Vice President; Treasurer and Chief Financial Officer Date August 9, 2000 /s/ NORMAN P. FOSTER ------------------------ --------------------------- NORMAN P. FOSTER Executive Vice President, Corporate Finance 35 EXHIBITS FILED WITH CURRENT FORM 10-Q: 3.0 - Articles of Incorporation - as amended 12.0 - Statement regarding the computation of ratio of earnings to fixed charges 27.0 - Financial Data Schedule (for SEC use only). 36 EX-3 2 0002.txt AMENDED ARTICLES OF INCORPORATION ARTICLES OF AMENDMENT OF AFLAC INCORPORATED Pursuant to the Georgia Business Corporation Code, AFLAC Incorporated, a Georgia corporation, hereby submits the following Articles of Amendment: I. The name of the Corporation is AFLAC Incorporated and the Charter Number of the Corporation is J506758. II. The first sentence of Article IV is amended to read in its entirety as follows: "The Corporation shall have the authority to issue one billion (1,000,000,000) shares of common stock having a par value of $.10 per share (the "Common Stock")." III. The amendment was adopted on May 1, 2000 by the vote of the holders of three hundred seventy-nine million four hundred thirty-two thousand thirty- five (379,432,035) votes representing fifty-four percent (54%) of the votes outstanding and entitled to vote their own. The affirmative vote of the holders of the majority of the outstanding voting rights of common stock entitled to vote is required to amend the Articles of Incorporation. IN WITNESS THEREOF, AFLAC Incorporated has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, this the 5th day of May, 2000. AFLAC INCORPORATED By: /s/ Daniel P. Amos ------------------------------- Daniel P. Amos President and Chief Executive Officer Attest: /s/ Joey M. Loudermilk ----------------------------- Joey M. Loudermilk Secretary (Corporate Seal) 1 ARTICLES OF AMENDMENT The shareholders of AFLAC INCORPORATED, a corporation organized and existing under the laws of the State of Georgia, did on May 5, 1997, adopt an amendment to the Articles of Incorporation of said corporation such that the first sentence of Article IV is amended to read in its entirety as follows: "The corporation shall have the authority to issue four hundred million (400,000,000) shares of common stock having a par value of $.10 per share (the "Common Stock")." Such amendment was adopted by the vote of the holders of 272,329,338.797 votes, there being 386,258,207 votes outstanding and entitled to vote thereon. The affirmative vote of the holders of a majority of the outstanding voting rights of Common Stock entitled to vote is required to amend the Articles of Incorporation. IN WITNESS WHEREOF, AFLAC INCORPORATED has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, on this 6th day of May, 1997. By: /s/ Daniel P. Amos ------------------------------------ Name: DANIEL P. AMOS, President Title: and Chief Executive Officer ATTEST: /s/ Joey M. Loudermilk --------------------------- Name: JOEY M. LOUDERMILK Title: Secretary (Corporate Seal) 2 ARTICLES OF AMENDMENT Pursuant to the provisions of the Georgia Business Corporation Code, Section 14-2-1006, the undersigned corporation hereby amends its Articles of Incorporation, and for that purpose, submits the following statement: (1) The name of the corporation is: American Family Corporation (2) The text of each amendment adopted is: "The name of the corporation is AFLAC Incorporated" "The title of the Bylaws of the Corporation be, effective January 1, 1992, amended to read as follows: 'Bylaws of AFLAC Incorporated.'" (3) The manner of implementation of any exchange reclassification, or cancellation of issued shares is as follows: All outstanding shares of American Family Corporation will be honored as shares of AFLAC Incorporated; all reissued or newly issued shares after January 1, 1992 will be in the name of AFLAC Incorporated. (4) The amendment was duly adopted on December 10, 1991 by the board of directors without shareholder approval, as such approval is not required. (5) The date said name change will be effective is January 1, 1992. (6) The corporation certifies that a notice of Intent to File Articles of Amendment to change name of corporation and a publishing fee of $40.00 has been delivered to the Columbus Ledger-Enquirer, as required by law, the date below written. American Family Corporation DATE: December 10, 1991 /s/ Joey M. Loudermilk ----------------------------------- JOEY M. LOUDERMILK General Counsel and Assistant Corporate Secretary 3 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF AMERICAN FAMILY CORPORATION I. The name of the corporation is American Family Corporation (the "Corporation"), II. These Articles of Amendment amend Article IV, Section (iii) of the Articles of Incorporation of the Corporation by adding the following sentence following the word "therefore": "Shares purchased by the Corporation shall become Treasury shares and may be reissued." III. The amendment was adopted by the Board of Directors of the Corporation on October 15, 1990. In accordance with Section 14-2-631(d) of the Georgia Business Corporation Code, no shareholder action was required for the amendment. IN WITNESS WHEREOF, American Family Corporation has caused these Restated Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested by its duly authorized officer, on this 26th day of March, 1991. AMERICAN FAMILY CORPORATION By: /s/ Daniel P. Amos ------------------------------ Daniel P. Amos Title: Chief Executive Officer ------------------------------ (Corporate Seal) ATTEST: /s/ Louis A. Hazouri, Jr. - ------------------------------------ Louis A. Hazouri, Jr. Secretary 4 ARTICLES OF AMENDMENT The shareholders of AMERICAN FAMILY CORPORATION, a corporation organized and existing under the laws of the State of Georgia, did on April 25, 1988, adopt an amendment to the Articles of Incorporation of said Corporation as follows: "No director shall be personally liable to the corporation or its stockholders for monetary damages for any breach of duty of care or other duty as a director. Notwithstanding the foregoing, a director shall be liable to the extent provided by applicable law: (i) for the appropriation in violation of his duties of any business opportunity of the corporation; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for any action for which the director could be found liable pursuant to Section 14-2-154 of the Official Code of Georgia Annotated, or any amendment thereto or successor provision thereto; and (iv) for any transaction from which the director derived an improper personal benefit. This provision shall not eliminate or limit the liability of a director for any act or omission occurring prior to April 26, 1988 (the effective date of the amendment). If the Official Code of Georgia Annotated hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of the director of the corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended Official Code of Georgia Annotated. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omission of such director occurring prior to the effective date of such amendment." Said amendment was adopted by the vote of the holders of 234,783,541.672 votes, there being 80,957,884 shares outstanding and entitled to vote thereon. The vote of a majority of shareholders entitled to vote is required to amend the Articles of Incorporation. IN WITNESS WHEREOF, the American Family Corporation has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, on this 25th day of April, 1988. By: /s/ Joey M. Loudermilk ------------------------------- Vice President ATTEST: /s/ Jay W. Hobson ---------------------------- Assistant Secretary (Corporate Seal) 5 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF AMERICAN FAMILY CORPORATION I. The name of the Corporation is American Family Corporation. II. The Articles of Incorporation of American Family Corporation are hereby amended by striking in its entirety the first sentence of Article IV of said Articles and adding thereto the following new first sentence of Article IV so that the Articles of Incorporation of American Family Corporation, as amended, shall read as follows: "The Corporation shall have authority to issue one hundred seventy-five million (175,000,000) shares of common stock having a par value of $.10 per share (the "Common Stock"). III. The amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof was adopted by the shareholders of the Corporation at a meeting duly held on April 27, 1987. IV. (a) The vote of the shareholders of the Corporation required to adopt the Amendment set forth in Section II hereof was the vote of the holders of a majority of the stock of the Corporation having voting power defined as follows: Except as otherwise provided in subparagraph (2) of this paragraph (a), every holder of record of the Corporation's common stock shall be entitled to: (1) Vote in person or by proxy on each matter submitted to a vote at a meeting of shareholders for each share of the common stock of record by such holder as of the record date of such meeting. (2) Notwithstanding subparagraph (1) of this paragraph (a), a holder of record of a share of the common stock which share meets one or both of the following criteria, shall be entitled to ten (10) votes on each matter submitted to a vote at a meeting of shareholders for each share of the common stock so owned by such holder of record as of the record of such meeting. (i) Such share of the common stock has had the same beneficial owner since April 22, 1985, or (ii) Such share of the common stock has had the same beneficial owner for a continuous period of greater than 48 months prior to the record date of such meeting. 6 (b) The number of shares of the Corporation's common stock which were issued and outstanding and entitled to vote as of March 6, 1987 the record date for said shareholders' meeting, was 80,512,901. Of said shares, 50,306,837 shares had the right to vote one vote per share and 30,206,064 shares had the right to vote ten votes per share. The total number of voting rights represented by said shares was 352,367,477. (c) The number of voting rights required to be voted to adopt the Amendment was 176,183,739 representing the majority of the voting rights represented by the issued and outstanding shares entitled to vote thereon. The number of voting rights of the Corporation's common stock being voted in favor of said Amendment, voting generally and as a class, was 227,157,291 or 64.5 percent of the voting rights represented by the issued and outstanding shares entitled to vote. The number of voting rights being voted against the Amendment was 16,015,896. The number of voting rights which affirmatively abstained from voting on the Amendment were 2,406,842. V. The majority of the votes cast by the shareholders entitled to vote at the meeting of shareholders were voted to adopt said amendment in accordance with the provisions of the charter and Section 14-2-191 of the Official Code of Georgia Annotated. VI. The Amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof does not provide for an exchange or cancellation of any issued shares of the Corporation. VII. The Amendment effects no change in the stated capital of the Corporation. IN WITNESS WHEREOF, American Family Corporation has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, on this 11th day of June, 1987. AMERICAN FAMILY CORPORATION By: /s/ John B. Amos ------------------------------- Chairman of the Board Attest: /s/ Louis A. Hazouri, Jr. - ------------------------------- Secretary (Corporate Seal) 7 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF AMERICAN FAMILY CORPORATION I. The name of the Corporation is American Family Corporation. II. The Articles of Incorporation of American Family Corporation are hereby amended by striking in its entirety the first sentence of Article IV of said Articles and adding thereto the following new first sentence of Article IV so that the Articles of Incorporation of American Family Corporation, as amended, shall read as follows: "The Corporation shall have authority to issue not more than 100,000,000 shares of common stock having a par value of $.10 per share." III. The amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof was adopted by the shareholders of the Corporation at a meeting duly held on April 28, 1986. IV. (a) The vote of the shareholders of the Corporation required to adopt the Amendment set forth in Section II hereof was the vote of the holders of a majority of the stock of the Corporation having voting power defined as follows: Except as otherwise provided in subparagraph (2) of this paragraph (a), every holder of record of the Corporation's common stock shall be entitled to: (1) Vote in person or by proxy on each matter submitted to a vote at a meeting of shareholders for each share of the common stock held of record by such holder as of the record date of such meeting. (2) Notwithstanding subparagraph (1) of this paragraph (a), a holder of record of a share of the common stock, which share meets one or both of the following criteria, shall be entitled to ten (10) votes on each matter submitted to a vote at a meeting of shareholders for each share of the common stock so owned by such holder of record as of the record of such meeting. (i) Such share of the common stock has had the same beneficial owner since April 22, 1985, or (ii) Such share of the common stock has had the same beneficial owner for a continuous period of greater than 48 months prior to the record date of such meeting. 8 (b) The number of shares of the Corporation's common stock which were issued and outstanding and entitled to vote as of March 7, 1986, the record date for said shareholders' meeting, was 39,986,385. Of said shares, 22,800,839 shares had the right to vote one vote per share and 17,185,545.6 shares had the right to vote ten votes per share. The total number of voting rights represented by said shares was 194,656,295. (c) The number of voting rights required to be voted to adopt the Amendment was 97,328,148, representing the majority of the voting rights represented by the issued and outstanding shares entitled to vote thereon. The number of voting rights of the Corporation's common stock being voted in favor of said Amendment, voting generally and as a class, was 141,679,373, or 72.8 percent of the voting rights represented by the issued and outstanding shares entitled to vote. The number of voting rights being voted against the Amendment was 2,965,271. The number of voting rights which affirmatively abstained from voting on the Amendment were 1,141,565. The number of voting rights which were represented by proxies at said meeting and which did not vote on the Amendment were 135. The number of voting rights which were not represented by proxy at the meeting and which were unvoted was 48,869,953. V. The majority of the votes cast by the shareholders entitled to vote at the meeting of shareholders were voted to adopt said amendment in accordance with the provisions of the Charter and Section 14-2-191 of the Official Code of Georgia Annotated. VI. The Amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof does not provide for an exchange or cancellation of any issued shares of the Corporation. VII. The Amendment effects no change in the stated capital of the Corporation. IN WITNESS WHEREOF, American Family Corporation has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, on this 21st day of July, 1986. AMERICAN FAMILY CORPORATION By: /s/ Salvador Diaz-Verson, Jr. -------------------------------- Attest: President /s/ Louis A. Hazouri, Jr. - ----------------------------- Secretary (CORPORATE SEAL) 9 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF AMERICAN FAMILY CORPORATION I. The name of the corporation is American Family Corporation (hereinafter referred to as the "CORPORATION"). II. These Articles of Amendment amend Article IV of the Articles of Incorporation of the Corporation as follows: (A) By striking the first sentence in Article IV in its entirety and substituting in lieu thereof the following: "The CORPORATION shall have authority to issue Seventy-Five Million (75,000,000) shares of common stock having a par value of $.10 per share (the "Common Stock")." (B) By amending Article IV by adding the provisions set forth below at the end of the first sentence of the first paragraph: "The Common Stock shall have the following voting rights: (a) Except as otherwise provided in paragraph (b) of this Section (i) every holder of record of the Common Stock shall be entitled to one (1) vote in person or by proxy on each matter submitted to a vote at a meeting of shareholders for each share of the Common Stock held of record by such holder as of the record date of such meeting. (b) Notwithstanding paragraph (a) of this Section (i), a holder of record of a share of the Common Stock, which share meets one or both of the following criteria, shall be entitled to ten (10) votes on each matter submitted to a vote at a meeting of shareholders for each share of the Common Stock so owned by such holder of record as of the record date of such meeting: (1) such share of the Common Stock has had the same beneficial owner since April 22, 1985; or (2) such share of the Common Stock has had the same beneficial owner for a continuous period of greater than 48 months prior to the record date of such meeting. (c) For purposes of paragraphs (b) and (e) of this Section (i), any transferee of a share of the Common Stock where such share of the Common Stock was transferred by gift, devise, 10 bequest or otherwise through the law of inheritance, descent or distribution from the estate of the transferor or to a trust beneficiary or beneficiaries by a trustee holding such share of the Common Stock for said beneficiary or benefit of the beneficiaries of said trust shall be deemed to be the same "beneficial owner" as the transferor. Additionally, any shares of Common Stock acquired by the beneficial owner as a direct result of a stock split, stock dividend or other type of distribution of shares with respect to existing shares ("dividend shares") will be deemed to have been acquired and held continuously from the date on which the shares with regard to which the dividend shares were issued were acquired. (d) For purposes of paragraph (b) of this Section (i), shares of the Common Stock acquired pursuant to a stock option shall be deemed to have been acquired on the date the option was granted. (e) For purposes of paragraph (b) of this Section (i), any share of the Common Stock held in "street" or "nominee" name shall be presumed to have been acquired by the beneficial owner subsequent to April 22, 1985 and to have had the same beneficial owner for a continuous period of less than 48 months prior to the record date of the meeting in question. This presumption shall be rebuttable by presentation to the Company by such beneficial owner of satisfactory evidence that such share has had the same beneficial owner continuously since April 22, 1985 or such share has had the same beneficial owner for a period greater than 48 months prior to the record date of the meeting in question. Any disputes arising pursuant to this paragraph (e) of this Section (i) shall be definitively resolved by a determination of the Board of Directors made in good faith." (C) By amending Article IV further to insert "(i)" before the first word of the first paragraph of Article IV, "(ii)" before the first word of the paragraph beginning "The Corporation shall have authority to issue not more than 2,300,000 shares...", "(iii)" before the first word of the paragraph beginning "Except as specifically provided above the Corporation shall have the full power to purchase and otherwise acquire..." and "(iv)" before the last paragraph of Article IV." III. The amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof was adopted by the shareholders of the CORPORATION at a meeting duly held on April 22, 1985. IV. (a) The vote of the shareholders of the CORPORATION required to adopt the Amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof was a majority of all shares of common stock, par value ($.10) per share, of the CORPORATION issued now standing and entitled to vote, both generally and as a class (said common stock being the only capital stock of the CORPORATION issued and outstanding). 11 (b) The number of shares of the Common Stock, par value $.10 per share, of the CORPORATION issued and outstanding and entitled to vote as of April 22, 1985, the record date for the meeting of shareholders of the CORPORATION on April 22, 1985, at which said Amendment was adopted was 19,875,312 shares. (c) The number of shares of the Common Stock, par value $.10 per share, of the CORPORATION voting for the said Amendment, voting generally and as a class, was 14,260,004 shares or 71.7 percent of the shares of such stock issued and outstanding and entitled to vote, with 1,147,144 shares of such stock being voted against the Amendment and 4,468,164 shares of such stock not voting. The number of shares which must be voted to adopt the amendment is 9,937,657, representing a majority of the issued and outstanding shares entitled to vote thereon. V. The Amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof does not provide for an exchange or cancellation of any issued shares of the corporation. The extent to which the Amendment to the Articles of Incorporation set forth in Section II hereof provides for a reclassification of issued shares of the CORPORATION is set forth in the Amendment. VI. The Amendment to the Articles of Incorporation of the Corporation set forth in Section II hereof does not effect a change in the stated capital of the CORPORATION. AMERICAN FAMILY CORPORATION By: /s/ John B. Amos ------------------------------- JOHN B. AMOS Chairman of the Board and Chief Executive Officer (Seal) Attest: /s/ George W. Jeter - ----------------------------- GEORGE W. JETER Secretary of American Family Corporation 12 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF AMERICAN FAMILY CORPORATION I. The name of the corporation is American Family Corporation. II. The Articles of Incorporation of American Family Corporation are hereby amended by striking in its entirety the first sentence of Article IV of said Articles and adding thereto the following new first sentence of Article IV so that the Articles of Incorporation of American Family Corporation, as amended, shall read as follows: "The Corporation shall authority to issue not more than 25,000,000 shares of common stock having a par value of $.10 per share." III. On April 23, 1984 the amendment was adopted by the vote of 14,079,909 shares, there being 17,846,550 shares outstanding and entitled to vote thereon. The vote of a majority of shareholders entitled to vote is required to amend the Articles of Incorporation. IV. The amendment does not provide for an exchange, reclassification or cancellation of any issued shares of the Corporation. V. The amendment does not effect a change in the stated capital of the Corporation. 13 VI. IN WITNESS WHEREOF, American Family Corporation has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested, all by its duly authorized officers, on this 24th day of May, 1984. AMERICAN FAMILY CORPORATION By: /s/ John B. Amos ------------------------------- JOHN B. AMOS Chairman of the Board and Chief Executive Officer (Corporate Seal) Attest: /s/ George W. Jeter - ----------------------------- GEORGE W. JETER Secretary 14 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF AMERICAN FAMILY CORPORATION (1) The name of the Corporation is American Family Corporation (herein referred to as the "corporation"). (2) These articles of amendment amend Article IV of the articles of incorporation of the corporation (A) by changing the first word of the second paragraph of said Article IV from "The" to "the" and adding at the beginning of such paragraph before the "the" the words "Except as specifically provided above," and (B) by adding the provisions set forth below after the first paragraph of said Article IV and before the second paragraph of said Article IV: The corporation shall have authority to issue not more than 2,300,000 shares of nonvoting cumulative preferred stock having a par value of $12.75 per share upon the following terms and conditions. (a) If issued, the preferred stock of the corporation authorized herein may be issued only in one series on a single date (the "issuance date"). The shares of such series shall be designated "Nonvoting Cumulative Preferred Stock, 1980 Series," with the year of the issuance date to be inserted in the title (hereinafter called the "preferred stock"). After the issuance date, no additional shares of the preferred stock shall be issued. (b) The holders of the preferred stock shall be entitled to receive, when, as and if declared by the Board of Directors of the corporation, out of the earnings and other funds and assets of the corporation legally available for the payment of cash dividends, cash dividends at the annual rates of $.90 per share for the first 5 years, $2.20 per share for the 6th year, $2.60 per share for the 7th year, $3.69 per share for the 8th year, $4.36 per share for the 9th year, and $5.18 per share for the 10th and subsequent years. The years for which the aforesaid annual dividend rates shall apply shall commence on the issuance date of the preferred stock and each anniversary thereof. The dividends shall be payable for each calendar quarter (ending on the last day of every March, June, September and December) on the first day of every March, June, September and December included in such quarter (or, if such date is one on which the New York Stock Exchange is not open for trading, then on the next succeeding day on which such exchange is open for trading) to holders of record of the preferred stock at the end of the 15th day of the preceding month. The first dividend, however, shall be payable on the payment date during and for the first calendar quarter commencing on or after the issuance date, and shall be in an amount, determined at the initial annual rate of $.90, for the period from the issuance date until the end of 15 such first calendar quarter. Cash dividends on the preferred stock shall commence to accrue and be accumulative from the issuance date. So long as any shares of the preferred stock shall remain outstanding, no dividend whatsoever shall be declared or paid or set apart for any shares of common stock, par value $.10 per share, of the corporation (hereinafter called the "common stock") or any other capital stock of the corporation ranking junior to the preferred stock in payment of dividends, nor shall any shares of the common stock, the preferred stock or any other capital stock of the corporation ranking on a parity with or junior to the preferred stock in payment of dividends be redeemed or purchased by the corporation or any subsidiary thereof, nor shall any monies be paid to or made available for a sinking fund for the redemption or purchase of any shares of such stock or otherwise applied to such redemption or purchase, unless in each instance all cash dividends on all outstanding shares of the preferred stock through and including the dividend payable on the last quarterly payment date shall have been paid, or dividends in such amount shall have been declared and sufficient funds set aside for the payment thereof; provided, however, that notwithstanding the foregoing limitation, any monies deposited (not in violation of the aforesaid limitation at the time of deposit) in any sinking fund in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of stock in accordance with the terms of the sinking fund; and provided further, that notwithstanding the foregoing limitation, dividends payable solely in shares of the common stock may be paid upon shares of the common stock. For purposes of this paragraph (b), no share of the preferred stock shall be deemed to be issued or outstanding at any time at which it is held by or for the account of the corporation, but the same shall be deemed to be issued and outstanding if held by or for the account of a subsidiary of the corporation. Accumulation of dividends on the preferred stock shall not bear interest. (c) At any time or from time to time after the 5th anniversary of the issuance date, the corporation may call for and require the redemption of all or any portion of the outstanding shares of the preferred stock effective in each case as of a date (the "redemption date") after the 5th anniversary of the issuance date. Such action must be authorized by resolution of the Board of Directors, and if less than all outstanding shares of the preferred stock are to be redeemed, the particular shares to be redeemed shall be chosen by allocation among the respective holders of the shares of the preferred stock pro rata or substantially pro rata as may be determined by resolution of the Board of Directors. The corporation may, however, exclude from any redemption, to the extent set forth in a resolution of the Board of Directors of the corporation any or all shares of the preferred stock held by or for the account of the corporation or any subsidiary of the corporation. Written notice of the redemption and of any change in the shares to be redeemed or the allocation thereof among holders thereof shall be given by first class mail, postage prepaid, at least 30 but not more than 90 days prior to the redemption date to each record holder of the preferred stock at 16 such holder's address as it shall appear on the stock records of the corporation. Notice so mailed shall be conclusively presumed to have been duly given whether or not actually received. The redemption price shall be $14.00 per share, together within each case an amount equal to any dividend arrearages on the preferred stock payable but undeclared or unpaid prior to the redemption date plus a pro rata (based on a 30 day month and a 360 day year) accrual in respect of preferred stock dividends, if any, not yet payable as of the redemption date but accruing for the period from the end of the last full calendar quarter (ending the last day of March, June, September or December) to the redemption date. On and after the date fixed on any notice of redemption as the date of redemption, and if funds sufficient to redeem such shares have been irrevocably set aside, all rights of holders of the preferred stock to be redeemed as stockholders of the corporation shall cease and terminate, except the right to receive the redemption price, without interest, as provided herein. Alternatively, if the corporation shall so elect, on and after a date, which shall be the redemption date or any date prior therein but not earlier than the 5th anniversary of the issuance date and which shall be the later of (i) the date on which written notice of redemption is mailed to holders of the preferred stock as provided above and (ii) the date on which funds sufficient in amount to pay on the redemption date the aggregate redemption price (determined as provided above as of the redemption date) have been deposited with a commercial bank in the United States duly designated as paying agent by the corporation by resolution of its board of directors (provided the notice of redemption shall state the name and address of such paying agent and the intention of the corporation to deposit said funds on or before the redemption date with the paying agent or the fact of such deposit), all rights of holders of the preferred stock to be redeemed as stockholders of the corporation shall cease and terminate, except the right to receive the redemption price, without interest, as provided herein. Any monies so deposited with a paying agent which shall be unclaimed by holders of the preferred stock so called for redemption at the end of a period, not less than one full year after the redemption date, designated by the corporation by resolution of its board of directors, shall be paid by the paying agent to the corporation, and thereafter the holders of the preferred stock called for redemption shall look only to the corporation for payment thereof, without interest. On and after the date fixed in any notice as the date of redemption, the respective holders of record of the preferred stock shall be entitled to receive the redemption price, without interest, upon actual delivery to the corporation or to the duly designated paying agent of certificates for the shares to be redeemed, each such certificate, if required by the corporation, to be duly endorsed in blank or accompanied by proper instruments of assignment and transfer thereof duly executed in blank. In the event the corporation shall fail to set aside irrevocably (by deposit with a paying agent or otherwise) prior to the redemption date sufficient funds to make, or shall default in making, redemption payments for preferred stock which has been called for redemption, until such failure or default shall be cured through irrevocable set aside (by deposit with a 17 paying agent or otherwise) or payment or tender of payment to all remaining holders of preferred stock called for redemption of the redemption price, which price shall in the event of such failure or default include the amount of dividends which are payable but undeclared or unpaid or have accrued through the date of such irrevocable set aside, payment or tender of payment curing such failure or default (determined in the same manner as provided above with respect to dividends through the redemption date), no dividend whatsoever shall be declared or paid or set apart for the common stock or any other capital stock of the corporation ranking junior to the preferred stock in payment of dividends, nor shall any shares of the common stock, the preferred stock or any other capital stock of the corporation ranking on a parity with or junior to the preferred stock in payment of dividends be redeemed or purchased by the corporation or any subsidiary thereof, nor shall any monies be paid to or made available for a sinking fund for the redemption or purchase of any shares of such stock or otherwise applied to such redemption or purchase; provided, however, that notwithstanding the foregoing limitation, any monies deposited (not in violation of the aforesaid limitation at the time of deposit) in any sinking fund in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of stock in accordance with the terms of the sinking fund; and provided further, that notwithstanding the foregoing limitation, dividends payable solely in shares of the common stock may be paid upon shares of the common stock. A holder of the preferred stock shall not have any right to cause the corporation to redeem any shares of the preferred stock. (d) in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the holders of the preferred stock then outstanding shall be entitled to receive out of the assets of the corporation available for distribution to holders of its capital stock, whether from capital, surplus or earnings of any nature, before any payment shall be made to holders of the common stock or any other capital stock of the corporation ranking junior to the preferred stock as to distribution on liquidations, an amount equal to $12.75 per share together with in each case an amount equal to any dividend arrearages on the preferred stock payable but undeclared or unpaid plus a pro rata (based on a 30 day month and a 360 days year) accrual in respect of preferred stock dividends not yet payable as of the payment date but accruing for the period from the end of the last full calendar quarter (ending on the last day of March, June, September, or December) to the payment date. If the assets of the corporation available for distribution upon liquidation, dissolution or winding up of the corporation to the holders of the preferred stock and any other capital stock of the corporation ranking on a parity with the preferred stock as to distributions on liquidation upon the liquidation are insufficient to pay the holders thereof the full amounts to which they are entitled in such event, such holders shall share ratably in the assets which are so available. Holders of the preferred stock shall not be entitled to any further participation in the assets of the corporation upon its liquidation, dissolution or winding up. Written notice of any 18 voluntary or involuntary liquidation, dissolution or winding up of the corporation within the meaning of this paragraph (d), stating a payment date and the place where the distributable amounts shall be payable, shall be given by first-class mail, postage prepaid, at least 30 but not more than 90 days prior to the payment date stated therein to each record holder of the preferred stock at such holder's address as it shall appear on the stock records of the corporation. Notice so mailed shall be conclusively presumed to have been duly given whether or not actually received. Neither the sale, transfer or exchange of all or substantially all the assets of the corporation, nor the merger or consolidation of the corporation with or into any other company, nor the sale, transfer or exchange of all or substantially all the assets of the corporation in exchange for securities of another corporation, followed by liquidation of the corporation and the distribution of such securities to the holders of the capital stock of this corporation, shall be deemed to be a liquidation, dissolution or winding up of the corporation within the meaning of this paragraph (d). (e) Except as may be required by Georgia law and as set forth in paragraph (h) hereof, the holders of the preferred stock shall have no voting rights whatsoever in respect of the affairs of the corporation. (f) The holders of the preferred stock shall have no rights whatsoever to convert their shares of preferred stock into shares of the common stock or shares of any other stock or other securities of the corporation. (g) Any shares of the preferred stock redeemed, purchased or otherwise acquired by the corporation shall not be reissued or otherwise disposed of. The foregoing sentence does not apply to shares of the preferred stock purchased or otherwise acquired by a subsidiary of the corporation. The corporation may from time to time cause any or all shares of the preferred stock which has been redeemed, purchased or otherwise acquired by the corporation to be retired in the manner provided by law. (h) Except as may be provided by amendment to the articles of incorporation of the corporation approved by holders of a majority of the outstanding shares of the preferred stock voting as a class, the common stock and all other common or preferred capital stock of the corporation shall be junior to the preferred stock as to dividends and amounts distributable on liquidation, dissolution or winding up of the corporation, as provided in paragraphs (b) and (d) hereof, and the holders of the preferred stock shall be entitled to receive payments of all dividends payable (including any arrearages of cumulative dividends) or of all amounts distributable on liquidation with respect to the preferred stock, as the case may be, before or in preference and priority to any such payments with respect to any other capital stock of the corporation. The shares of the preferred stock shall not be subject to the operation of or to the benefit of any retirement or sinking fund. The shares of the preferred stock shall not have any relative, participating, optional or other special rights and powers other than as set 19 forth herein. For purposes of paragraphs (b), (c) and (g) hereof, the term "subsidiary" shall mean any company owned directly or indirectly 50% or more by the corporation. (3) The amendment to the articles of incorporation of the corporation set forth in section (2) hereof was adopted by the stockholders of the corporation at a meeting duly held on September 22, 1980. (4)(a) The vote of the stockholders of the corporation required to adopt the amendment to the articles of incorporation of the corporation set forth in section (2) hereof was a majority of all shares of common stock, par value $.10 per share, of the corporation issued and outstanding and entitled to vote, both generally and as a class (said common stock being the only capital stock of the corporation issued and outstanding). (b) The number of shares of the common stock, par value $.10 per share, of the corporation issued and outstanding and entitled to vote as of August 15, 1980, the record date for the meeting of stockholders of the corporation on September 22, 1980, at which said amendment was adopted, was 12,156,676 shares (excluding 96,600 treasury shares not entitled to vote). (c) The number of shares of the common stock, par value $.10 per share, of the corporation voted for the said amendment, voting generally and as a class, was 7,428,203 shares or 60.09% of the shares of such stock issued and outstanding and entitled to vote, with 135,404 shares of such stock being voted against the amendment and 4,728,473 shares of such stock not voting. (5) The amendment to the articles of incorporation of the corporation set forth in section (2) hereof does not provide for an exchange, reclassification or cancellation of any issued shares of the corporation. (6) The amendment to the articles of incorporation of the corporation set forth in section (2) hereof does not effect a change in the stated capital of the corporation. AMERICAN FAMILY CORPORATION (Seal) By: /s/ John B. Amos -------------------------------- Attest: JOHN B. AMOS Chairman of the Board and Chief Executive Officer /s/ George W. Jeter American Family Corporation - ----------------------------- GEORGE W. JETER Secretary American Family Corporation 20 ARTICLES OF AMENDMENT OF CORPORATE CHARTER OF AMERICAN FAMILY CORPORATION The shareholders of American Family Corporation, a corporation organized and existing under the laws of the State of Georgia, did on April 25, 1977, adopt the following resolution: "RESOLVED, that the first sentence of Article 4 of the Articles of Incorporation of American Family Corporation shall be amended to read as follows: `The corporation shall have authority to issue not more than 20,000,000 shares of common stock having a par value of $.10 per share.' Said Articles of Incorporation are hereby amended by deleting from Article 4 the first sentence as follows: `The corporation shall have authority to issue not more than 12,500,000 shares of common stock having a par value of $.10 per share.' and inserting in lieu thereof, the following: `The corporation shall have authority to issue not more than 20,000,000 shares of common stock having a par value of $.10 per share.' Said Article 4 as amended and restated is as follows: `The corporation shall have authority to issue not more than 20,000,000 shares of common stock having a par value of $.10 per share. The corporation shall have the full power to purchase and otherwise acquire and dispose of, its own shares and securities granted by the laws of the State of Georgia and shall have the right to purchase its shares out of its unreserved and unrestricted capital surplus available therefor, as well as out of its unreserved and unrestricted earned surplus available therefor. The Board of Directors may from time to time distribute to shareholders out of capital surplus of the corporation a portion of its assets in cash or in property.'" Said amendment was adopted by the vote of the holders of 6,082,910 shares out of a total of 9,309,673 shares eligible to vote of which 6,225,817 shares were represented at said meeting in person or by proxy. A majority of the shareholders voted to adopt said amendment in accordance with the provisions of the charter and Section 22-902 of the Georgia Code Annotated. The amendment does not provide for an exchange, reclassification or cancellation of issued shares. The amendment does not effect a change in the amount of stated capital. IN WITNESS WHEREOF, American Family Corporation has caused these Articles of Amendment to be executed and its corporate seal to be affixed and has caused the foregoing to be attested all by its duly authorized officers on this 16th day of September, 1977. AMERICAN FAMILY CORPORATION By: /s/ John B. Amos -------------------------------- John B. Amos, President Attest: /s/ Frances B. King ---------------------------- Asst. Secretary (SEAL) 21 ARTICLES OF INCORPORATION I. The name of the corporation is: American Family Corporation II. The corporation shall have perpetual duration. III. The corporation is organized for the following purposes: To purchase, own and hold the stock of other corporations, and to direct the operations of other corporations through the ownership of stock therein, to purchase, subscribe for, acquire, own, hold, sell, exchange, assign, transfer, create security interests in, pledge, or otherwise dispose of shares or voting trust certificates for shares of the capital stock, or any bonds, notes, securities, or evidences of indebtedness created by any other corporation or corporations organized under the laws of this state or any other state or district or country, nation or government, including without limitation insurance companies, insurance agencies and other businesses related to insurance, and also bonds or evidences of indebtedness of the United States or of any state, district, territory, dependency or country or subdivision or municipality thereof; to issue in exchange therefor shares of the capital stock, bonds, notes, or other obligations of this corporation and while the owner thereof to exercise all the rights, powers, and privileges of ownership including the right to vote any shares of stock or voting trust certificates so owned, to promote, lend money to, and guarantee the dividends, stocks, bonds, notes, evidences of indebtedness, contracts, or other obligations of, and otherwise aid in any manner which shall be lawful, any corporation or association of which any bonds, stocks, voting trust certificates, or other securities or evidences of indebtedness shall be held by or for this corporation, or in which, or in the welfare of which, the corporation shall have any interest, to do any acts and things permitted by law and designed to protect, preserve, improve, or enhance the value of any such bonds, stocks, or other securities or evidences of indebtedness or the property of this corporation, and to generally engage in the business of and to act as a holding company. To do each and every thing necessary, suitable or proper for the accomplishment of any of the purposes or the attainment of any one or more of the objects herein enumerated, or which shall at any time appear conducive to or expedient for the protection or benefit of the corporation. IN FURTHERANCE OF AND NOT IN LIMITATION of the general powers conferred by the laws of the State of Georgia and the objects and purposes herein set forth, it is expressly provided that to such extent as a corporation organized under the Georgia Business Corporation Code may now or hereafter lawfully do, the corporation shall have power to do, either as 22 principal or agent and either alone or in connection with other corporations, firms or individuals, all and everything necessary, suitable, convenient or proper for, or in connection with, or incident to, the accomplishments of any of the purposes or the attainment of any one or more of the objects herein enumerated, or designed directly or indirectly to promote the interests of the corporation or to enhance the value of its properties; and in general to do any and all things and exercise any and all powers, rights and privileges which a corporation may now or hereafter be authorized to do or to exercise under the Georgia Business Corporation Code or under any act amendatory thereof, supplemental thereto or substituted therefor. The foregoing provisions of this Article III shall be construed both as purposes and powers and each as an independent purpose and power. The foregoing enumeration of specific purposes and powers herein specified shall, except when otherwise provided in this Article III, be in no wise limited or restricted by reference to, or inference from the terms of any provision of this or any other Article of these Articles of Incorporation. IV. The corporation shall have authority to issue not more than 12,500,000 shares of common stock having a par value of $.10 per share. The corporation shall have the full power to purchase and otherwise acquire, and dispose of, its own shares and securities granted by the laws of the State of Georgia and shall have the right to purchase its shares out of its unreserved and unrestricted capital surplus available therefor, as well as out of its unreserved and unrestricted earned surplus available therefor. The Board of Directors may from time to time distribute to shareholders out of capital surplus of the corporation a portion of its assets, in cash or in property. V. The corporation shall have the power to create and issue, whether or not in connection with the issuance and sale of any of its shares or other securities, rights or options entitling the holders thereof to purchase from the corporation, for such consideration and upon such terms and conditions as may be fixed by the Board of Directors, shares of any class or series of the corporation, whether authorized but unissued shares or treasury shares; provided that the price or prices so fixed by the Board of Directors for shares so issued shall not be less than the par value of the said shares. VI. None of the holders of any stock or other securities of the corporation of any kind, class or series now or hereafter authorized shall have pre-emptive rights with respect to any shares of capital stock or other securities of the corporation, of any kind, class or series now or hereafter authorized. 23 VII. The initial registered office of the corporation shall be at 1932 Wynnton Road, Columbus, Georgia. The initial registered agent of the corporation shall be George W. Jeter. VIII. The initial Board of Directors shall consist of eighteen members, who shall be as follows: (1) John B. Amos (10) Hashem Naraghi 1932 Wynnton Road P. O. Box 7 Columbus, Georgia 31906 Escalon, California 95320 (2) William L. Amos (11) John M. Pope 1932 Wynnton Road P. O. Box 786 Columbus, Georgia 31906 Americus, Georgia 31709 (3) James Graham (12) Norman Reitman 1932 Wynnton Road 1 Rockefeller Plaza Columbus, Georgia 31906 New York, New York 10020 (4) G. Othell Hand, Th.D. (13) Jack S. Schiffman 1660 Flournoy Drive 1363 - 13th Street Columbus, Georgia 31906 Columbus, Georgia 31901 (5) Louis A. Hazouri, M.D. (14) Henry C. Schwob P. O. Box 5196 P. O. Box 1300 Columbus, Georgia 31906 Columbus, Georgia 31902 (6) Elmer Loftin (15) J. Kyle Spencer P. O. Box 151 P. O. Box 2847 Manchester, Georgia Columbus, Georgia 31902 (7) John P. McGoff (16) J. R. Thompson P. O. Box 1860 1932 Wynnton Road East Lansing, Michigan 48823 Columbus, Georgia 31906 (8) Mark T. McKee (17) Floyd Davis Wade 580 Oxford Road P. O. Box 149 Oxford, Connecticut 06483 Douglas, Georgia 31533 (9) Gordon L. Mullis (18) Joe M. Webber, M.D. P. O. Box 345 1932 Wynnton Road Camilla, Georgia 31730 Columbus, Georgia 31906 IX. The names and addresses of the incorporators are: John B. Amos W. L. Amos J. R. Thompson 1932 Wynnton Road 1932 Wynnton Road 1932 Wynnton Road Columbus, Georgia 31906 Columbus, Georgia 31906 Columbus, Georgia 31906 24 X. The corporation shall not commence business until it shall have received not less than $500.00 in payment for the issuance of shares of stock. IN WITNESS WHEREOF, the undersigned executed these Articles of Incorporation. /s/ John B. Amos ------------------------------ JOHN B. AMOS /s/ W. L. Amos ------------------------------ W. L. AMOS /s/ J. T. Thompson ------------------------------ J. R. THOMPSON 25 EX-12 3 0003.txt RATIO OF EARNINGS EXHIBIT 12.0 AFLAC INCORPORATED AND SUBSIDIARIES Ratio of Earnings to Fixed Charges (In thousands) Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------- -------- -------- -------- Fixed charges: Interest expense $ 4,772 $ 4,576 $ 9,638 $ 8,184 Rental expense deemed interest 142 124 275 244 ------- ------- ------- ------- Total fixed charges $ 4,914 $ 4,700 $ 9,913 $ 8,428 ======= ======= ======= ======= Earnings before income tax $259,410 $196,694 $502,675 $399,591 Add back: Fixed charges 4,914 4,700 9,913 8,428 ------- ------- ------- ------- Total earnings before income tax and fixed charges 264,324 201,394 512,588 408,019 Adjustments: Realized (gains)/losses 91,352 4,729 93,808 9,319 Release of retirement liability (101,225) - (101,225) - ------- ------- ------- ------- Total earnings before income tax and fixed charges as adjusted $254,451 $206,123 $505,171 $417,338 ======= ======= ======= ======= Earnings before income taxes and fixed charges 53.8x 42.8x 51.7x 48.4x Earnings before income taxes and fixed charges, as adjusted 51.8x 43.9x 51.0x 49.5x EX-27 4 0004.txt 2ND QUARTER FDS
7 This schedule contains summary financial information extracted from the Company's consolidated financial statements as filed in Form 10-Q for the period ended June 30, 2000, and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 24,649 7,786 7,758 239 0 0 32,690 967 0 3,756 38,794 29,283 362 0 322 1,097 0 0 32 4,129 38,794 4,073 761 (94) 16 3,270 146 837 503 145 358 0 0 0 358 1.35 1.31 0 0 0 0 0 0 0 Includes sale of one security at a loss of $34 and impairment of another security in the amount of $57. Includes release of retirement liability of $(101). Includes net realized losses of $58 ($.22 per basic share, $.21 per diluted share) due to the sale of one bond at a loss and the impairment of another bond. Includes benefit of $99 ($.37 per basic share, $.36 per diluted share) due to the release of a retirement liability.
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