Aflac 2006 Annual Report Download - page 53

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Consolidated Statements of Comprehensive Income Aflac Incorporated and Subsidiaries
(In millions) Years Ended December 31, 2006 2005 2004
Net earnings $ 1,483 $ 1,483 $ 1,266
Other comprehensive income (loss) before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses) during year (12) 44 (24)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during year (642) (538) 143
Reclassification adjustment for realized (gains) losses included in net earnings (79) (262) 12
Pension liability adjustment during year (64) (13) 14
Total other comprehensive income (loss) before income taxes (797) (769) 145
Income tax expense (benefit) related to items of other
comprehensive income (loss) (266) (115) 28
Other comprehensive income (loss), net of income taxes (531) (654) 117
Total comprehensive income $ 952 $ 829 $ 1,383
See the accompanying Notes to the Consolidated Financial Statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business: Aflac Incorporated (the Parent
Company) and its subsidiaries (the Company) primarily sell
supplemental health and life insurance in the United States
and Japan. The Company’s insurance business is marketed and
administered through American Family Life Assurance
Company of Columbus (Aflac), which operates in the United
States (Aflac U.S.) and as a branch in Japan (Aflac Japan). Most
of Aflac’s policies are individually underwritten and marketed
through independent agents. Our insurance operations in the
United States and our branch in Japan service the two markets
for our insurance business. Aflac Japan accounted for 72% of
the Company’s total revenues in 2006, 74% in 2005 and 75%
in 2004, and 82% of total assets at both December 31, 2006
and 2005.
Basis of Presentation: We prepare our financial statements in
accordance with U.S. generally accepted accounting principles
(GAAP). These principles are established primarily by the
Financial Accounting Standards Board (FASB). The preparation
of financial statements in conformity with GAAP requires us to
make estimates when recording transactions resulting from
business operations based on currently available information.
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 the
valuation of investments, deferred policy acquisition costs, and
liabilities for future policy benefits and unpaid policy claims.
These accounting estimates and actuarial determinations are
sensitive to market conditions, investment yields, mortality,
morbidity, commission and other acquisition expenses, and
terminations by policyholders. 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 consolidated financial statements include the accounts of
the Parent Company, its majority-owned subsidiaries and those
entities required to be consolidated under applicable
accounting standards. All material intercompany accounts and
transactions have been eliminated.
Translation of Foreign Currencies: The functional currency
of Aflac Japan’s insurance operations is the Japanese yen. We
translate our yen-denominated financial statement accounts
into U.S. dollars as follows. Assets and liabilities are translated
at end-of-period exchange rates. Realized gains and losses on
security transactions are translated at the exchange rate on the
trade date of each transaction. Other revenues, expenses and
cash flows are translated using average exchange rates for the
year. The resulting currency translation adjustments are
reported in accumulated other comprehensive income. We
include in earnings the realized currency exchange gains and
Notes to the Consolidated Financial Statements