Aflac 2015 Annual Report Download - page 10

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8
The company believes that it is important to understand the
impact of translating yen into dollars on our financial statements.
A significant portion of Aflac’s business is in Japan, where the
functional currency is the yen. For financial reporting purposes,
we translate Aflac Japan’s results in yen into U.S. dollars. It’s
noteworthy that Aflac’s currency exposure is primarily transla-
tion-related as opposed to currency transactions. Due to the
significant contribution of Aflac Japan’s operations to overall
THE IMPACT OF FOREIGN CURRENCY ON AFLAC
Impact of Currency on the Income Statement
Aflac’s income statement is translated at the average exchange rate
for the period. In years when the yen strengthens, translating yen
into dollars causes more dollars to be reported. In years when the
yen weakens, translating yen into dollars causes fewer dollars to be
reported. After several years of strengthening, the yen has weakened
for the past three years. In 2015, the average yen/dollar exchange
rate weakened 12.8% from 105.46 yen to the dollar to 120.99 yen
to the dollar, which suppressed Aflac’s income statement in dollar
terms. We believe that viewing our results excluding the impact from
foreign currency is the most meaningful way to evaluate our financial
performance. Operating earnings for the full year of 2015 were $4.1
billion. Excluding the impact from the weaker yen, operating earnings
were $4.4 billion.
Average Yen/Dollar Exchange Rates
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
90
100
80
70
110
120
¥130
YEN
WEAKENING
Source: Bloomberg ©
*Aflac believes that an analysis of operating earnings, a non-GAAP financial measure, is vitally important to an understanding of the company’s underlying profit-
ability drivers. Aflac defines operating earnings as the profits derived from operations, inclusive of interest cash flows associated with notes payable, but before
realized investment gains and losses from securities transactions, impairments, and derivative and hedging activities, as well as other and nonrecurring items.
13 14 15
4
3
2
2
2
3
4
54
4.1
15
.1
2015 2015
4.4
4.1
As Reported
Excluding Yen Impact
Pretax Operating Earnings*
(Dollars, In Billions)
YEN
STRENGTHENING