Aflac 2008 Annual Report Download - page 89

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It’s no mystery how Aflac makes a difference.
series of Samurai notes pays interest semiannually, may only
be redeemed prior to maturity upon the occurrence of a tax
event as specified in the respective bond agreement and is not
available to U.S. persons.
In September 2006, the Parent Company issued three
tranches of Uridashi notes totaling ¥45 billion. The first
tranche totaled ¥15 billion and has a five-year maturity. The
second tranche totaled ¥10 billion and has a 10-year maturity.
The third tranche totaled ¥20 billion and has a five-year
maturity and a variable interest coupon of six-month yen
LIBOR plus a spread. We have entered into interest rate swaps
related to the ¥20 billion variable interest rate notes (see Note
4). Each tranche of Uridashi notes pays interest semiannually,
may only be redeemed prior to maturity upon the occurrence
of a tax event as specified in the respective bond agreement
and is not available to U.S. persons.
For our yen-denominated loans, the principal amount as stated
in dollar terms will fluctuate from period to period due to
changes in the yen/dollar exchange rate. We have designated
all of our yen-denominated notes payable as a nonderivative
hedge of the foreign currency exposure of our investment in
Aflac Japan. We have also designated the interest rate swaps
on our variable interest rate Uridashi notes as a hedge of the
variability in our interest cash flows associated with these notes.
In 1999, we issued $450 million of senior notes. These notes
pay interest semiannually and are redeemable at our option
at any time with a redemption price equal to the principal
amount of the notes redeemed plus a make-whole premium.
We have entered into cross-currency swaps related to these
notes (see Note 4). By entering into these cross-currency
swaps, we converted our $450 million liability into a ¥55.6
billion liability, and we reduced our interest rate from 6.5% in
dollars to 1.67% in yen. We plan to either refinance, subject
to market conditions, or use existing cash to pay off the
aforementioned senior notes when they mature in April 2009.
The aggregate contractual maturities of notes payable during
each of the years after December 31, 2008, are as follows:
Capitalized Total
Long-term Lease Notes
(In millions) Debt Obligations Payable
2009 $ 450 $ 3 $ 453
2010 439 3 442
2011 385 1 386
2012 329 1 330
2013 – – –
Thereafter 110 – 110
Total $ 1,713 $ 8 $ 1,721
We have no restrictive financial covenants related to our notes
payable. We were in compliance with all of the covenants of
our notes payable at December 31, 2008. No events of default
or defaults occurred during 2008 and 2007.
8. INCOME TAXES
The components of income tax expense (benefit) applicable
to pretax earnings for the years ended December 31 were as
follows:
(In millions) Japan U.S. Total
2008:
Current $ 409 $ 227 $ 636
Deferred 109 (85) 24
Total income tax expense $ 518 $ 142 $ 660
2007:
Current $ 450 $ 98 $ 548
Deferred 222 95 317
Total income tax expense $ 672 $ 193 $ 865
2006:
Current $ 398 $ 21 $ 419
Deferred 229 133 362
Total income tax expense $ 627 $ 154 $ 781
Income tax expense in the accompanying statements of
earnings varies from the amount computed by applying the
expected U.S. tax rate of 35% to pretax earnings. The principal
reasons for the differences and the related tax effects for the
years ended December 31 were as follows:
(In millions) 2008 2007 2006
Income taxes based on U.S. statutory rates $ 670 $ 875 $ 792
Utilization of foreign tax credit (27) (23) (21)
Nondeductible expenses 11 11 10
Other, net 6 2 –
Income tax expense $ 660 $ 865 $ 781
Total income tax expense for the years ended December 31,
was allocated as follows:
(In millions) 2008 2007 2006
Statements of earnings $ 660 $ 865 $ 781
Other comprehensive income:
Change in unrealized foreign currency
translation gains (losses) during year (457) (82) 10
Pension liability adjustment during year (29) 5 3
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses)
arising during year (716) (291) (226)
Reclassification adjustment for realized
(gains) losses included in net earnings (353) (10) (28)
Total income tax expense ( benefit) allocated
to other comprehensive income (1,555) (378) (241)
Additional paid-in capital (exercise of stock options) (16) (51) (18)
Adoption of SFAS 158 – – (25)
Total income taxes $ (911) $ 436 $ 497