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Appendix C – Definition of Non-GAAP Measures and
Reconciliations to Corresponding GAAP Measures
The Proxy includes references to the Company’s performance measures, operating earnings, operating earnings
per diluted share, excluding foreign currency effect, operating revenues on a currency-neutral basis, and operating
return on equity excluding foreign currency effect. These measures are not calculated in accordance with U.S.
GAAP.
These measures exclude items that the company believes may obscure the underlying fundamentals and trends
in insurance operations because they tend to be driven by general economic conditions and events or related to
infrequent activities not directly associated with insurance operations. Management uses operating earnings and
operating earnings per diluted share to evaluate the financial performance of The Company’s insurance operations
on a consolidated basis and believes that a presentation of these measures is vitally important to an understanding
of the underlying profitability drivers and trends of Aflac’s insurance business.
The Company defines operating earnings as the profits derived from operations. Operating earnings includes
interest cash flows associated with notes payable but excludes items that cannot be predicted or that are outside
of management’s control, such as realized investment gains and losses from securities transactions, impairments,
and derivative and hedging activities; nonrecurring items; and other non-operating income (loss) activities from net
earnings.
Operating earnings per share (basic or dilutive) are the operating earnings for the period divided by the average
outstanding shares (basic or dilutive) for the period presented.
Due to the size of Aflac Japan, where the functional currency is the Japanese yen, fluctuations in the yen/dollar
exchange rate can have a significant effect on reported results. In periods when the yen weakens, translating yen
into dollars results in fewer dollars being reported. When the yen strengthens, translating yen into dollars results
in more dollars being reported. Consequently, yen weakening has the effect of suppressing current period results
in relation to the comparable prior period, while yen strengthening has the effect of magnifying current period
results in relation to the comparable prior period. As a result, the company views foreign currency translation as
a financial reporting issue for Aflac rather than an economic event to the company or shareholders. Because a
significant portion of the company’s business is conducted in Japan and foreign exchange rates are outside of
management’s control, Aflac believes it is important to understand the impact of translating Japanese yen into
U.S. dollars. Operating earnings, operating earnings per diluted share “excluding current period foreign currency
impact”, and operating revenues on a currency-neutral basis are computed using the average yen/dollar exchange
rate for the comparable prior year period, which eliminates dollar based fluctuations driven solely from currency
rate changes.
Operating return on equity excluding foreign currency effect for fiscal year 2016 is calculated using operating
earnings excluding yen, as reconciled with total GAAP net earnings. This is divided by average shareholders’
equity, excluding unrealized gains/losses on investment securities and derivatives of $4.8 billion at December 31,
2016; however, the yen-based equity balances beginning and ending are restated at the previous year’s exchange
rate to ensure comparability to the prior year.
Appendix C
AFLAC INCORPORATED
2017 PROXY STATEMENT
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