Aflac 2007 Annual Report Download - page 54

50 There’s Only One Aflac
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 71% of the Company’s total revenues in
2007, 72% in 2006 and 74% in 2005, and 82% of total assets
at both December 31, 2007 and 2006.
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.
Notes to the Consolidated Financial Statements
Consolidated Statements of Comprehensive Income Aflac Incorporated and Subsidiaries
(In millions) Years Ended December 31, 2007 2006 2005
Net earnings $ 1,634 $ 1,483 $ 1,483
Other comprehensive income (loss) before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains (losses) during year (8) (12) 44
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) during year (848) (642) (538)
Reclassification adjustment for realized (gains) losses included in net earnings (28) (79) (262)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) during year (1) ––
Pension liability adjustment during year 14 5 (13)
Total other comprehensive income (loss) before income taxes (871) (728) (769)
Income tax expense (benefit) related to items of other
comprehensive income (loss) (379) (241) (115)
Other comprehensive income (loss), net of income taxes (492) (487) (654)
Total comprehensive income $ 1,142 $ 996 $ 829
See the accompanying Notes to the Consolidated Financial Statements.