Aflac 2006 Annual Report Download - page 74

70
We base the long-term rate of return on U.S. plan assets on
the historical rates of return over the last 15 years and the
expectation of similar returns over the long-term investment
goals and objectives of U.S. plan assets. We base the long-term
rate of return on the Japanese plan assets on the historical
rates of return over the last 10 years.
In addition to the benefit obligations for funded employee
plans, we also maintain unfunded supplemental retirement
plans for certain officers and beneficiaries. Retirement expense
for these unfunded supplemental plans was $16 million in
2006, $20 million in 2005, and $32 million in 2004. The
accrued retirement liability for the unfunded supplemental
retirement plans was $209 million at December 31, 2006,
compared with $203 million a year ago. The assumptions used
in the valuation of these plans were the same as for the
funded plans.
Stock Bonus Plan: Aflac U.S. maintains a stock bonus plan for
eligible U.S. sales associates. Plan participants receive shares of
Aflac Incorporated common stock based on their new
annualized premium sales and their first-year persistency of
substantially all new insurance policies. The cost of this plan,
which is included in deferred policy acquisition costs,
amounted to $40 million in 2006, $37 million in 2005, and
$35 million in 2004.
13. COMMITMENTS AND CONTINGENT
LIABILITIES
We have entered into two outsourcing agreements with IBM
to provide mainframe computer operations and support for
Aflac Japan. The first agreement that began in 2006 has a
remaining term of nine years and an aggregate remaining cost
of ¥26.0 billion ($218 million using the December 31, 2006,
exchange rate). The second agreement begins in 2007 with a
term of nine years and an aggregate cost of ¥31.8 billion ($267
million using the December 31, 2006, exchange rate).
We have also entered into an outsourcing agreement with
Accenture to provide application maintenance and
development services for our Japanese operation. The
agreement has a term of seven years with an aggregate cost
of ¥5.3 billion ($45 million using the December 31, 2006,
exchange rate).
We lease office space and equipment under various
agreements that expire in various years through 2021. Future
minimum lease payments due under non-cancelable operating
leases at December 31, 2006, were as follows:
(In millions)
2007 $ 42
2008 24
2009 12
2010 10
2011 9
Thereafter 46
Total future minimum lease payments $ 143
In 2005, we announced a multiyear building project for
additional office space in Columbus, Georgia. The initial phase
is to be completed in mid-2007 and is expected to cost
approximately $26 million. The next phase of the expansion is
anticipated to begin in mid-2007.
We are a defendant in various lawsuits considered to be in the
normal course of business. Senior legal and financial
management review litigation on a quarterly and annual basis.
The final results of any litigation cannot be predicted with
certainty. Although some of this litigation is pending in states
where large punitive damages bearing little relation to the
actual damages sustained by plaintiffs have been awarded in
recent years, 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. SUPPLEMENTARY INFORMATION
(In millions) 2006 2005 2004
Supplemental disclosures of
cash flow information:
Income taxes paid $ 569 $ 360 $ 160
Interest paid 15 21 22
Impairment losses included in realized investment
gains (losses) 1–1
Noncash financing activities:
Capitalized lease obligations 946
Dividends declared 91 ––
Treasury shares issued to AFL Stock Plan for:
Associate stock bonus 35 33 32
Shareholder dividend reinvestment 15 11 10