MetLife 2005 Annual Report Download - page 80

METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
future benefit payments were effective for fiscal years ending after June 15, 2004. The Company’s adoption of SFAS 132(r) did not have a significant
impact on its consolidated financial statements since it only revised disclosure requirements.
During 2003, the Company adopted FIN 46 and FIN 46(r). Certain of the Company’s investments in real estate joint ventures and other limited
partnership interests meet the definition of a variable interest entity (‘‘VIE’’) and have been consolidated, in accordance with the transition rules and
effective dates, because the Company is deemed to be the primary beneficiary. A VIE is defined as (i) any entity in which the equity investments at risk in
such entity do not have the characteristics of a controlling financial interest; or (ii) any entity that does not have sufficient equity at risk to finance its
activities without additional subordinated support from other parties. Effective February 1, 2003, the Company adopted FIN 46 for VIEs created or
acquired on or after February 1, 2003 and, effective December 31, 2003, the Company adopted FIN 46(r) with respect to interests in entities formerly
considered special purpose entities (‘‘SPEs’’), including interests in asset-backed securities and collateralized debt obligations. The adoption of FIN 46 as
of February 1, 2003 did not have a significant impact on the Company’s consolidated financial statements. The adoption of the provisions of FIN 46(r) at
December 31, 2003 did not require the Company to consolidate any additional VIEs that were not previously consolidated. In accordance with the
provisions of FIN 46(r), the Company elected to defer until March 31, 2004 the consolidation of interests in VIEs for non-SPEs acquired prior to
February 1, 2003 for which it is the primary beneficiary. As of March 31, 2004, the Company consolidated assets and liabilities relating to real estate joint
ventures of $78 million and $11 million, respectively, and assets and liabilities relating to other limited partnerships of $29 million and less than $1 million,
respectively, for VIEs for which the Company was deemed to be the primary beneficiary. There was no impact to net income from the adoption of FIN 46.
Effective January 1, 2003, the Company adopted FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (‘‘FIN 45’’). FIN 45 requires entities to establish liabilities for certain types of guarantees and expands
financial statement disclosures for others. The initial recognition and initial measurement provisions of FIN 45 were applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a significant impact on the Company’s consolidated
financial statements. See Note 12.
Effective January 1, 2003, the Company adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (‘‘SFAS 146’’).
SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recorded and measured initially at fair value only when the liability
is incurred rather than at the date of an entity’s commitment to an exit plan as required by EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity Including Certain Costs Incurred in a Restructuring (‘‘EITF 94-3’’). As required by SFAS 146, the
Company adopted this guidance on a prospective basis which had no material impact on the Company’s consolidated financial statements.
Effective January 1, 2003, the Company adopted SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (‘‘SFAS 145’’). In addition to amending or rescinding other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS 145 generally precludes companies from
recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS 145 also requires sale-leaseback treatment for certain
modifications of a capital lease that result in the lease being classified as an operating lease. The adoption of SFAS 145 did not have a significant impact
on the Company’s consolidated financial statements.
2. Acquisitions and Dispositions
Travelers
On July 1, 2005, the Holding Company completed the acquisition of Travelers for $12.0 billion. The results of Travelers’ operations were included in
the Company’s consolidated financial statements beginning July 1, 2005. As a result of the acquisition, management of the Company increased
significantly the size and scale of the Company’s core insurance and annuity products and expanded the Company’s presence in both the retirement &
savings domestic and international markets. The distribution agreements executed with Citigroup as part of the acquisition will provide the Company with
one of the broadest distribution networks in the industry. Consideration paid by the Holding Company for the purchase consisted of approximately
$10.9 billion in cash and 22,436,617 shares of the Holding Company’s common stock with a market value of approximately $1.0 billion to Citigroup and
approximately $100 million in other transaction costs. Consideration paid to Citigroup will be finalized subject to review of the June 30, 2005 financial
statements of Travelers by both the Company and Citigroup and interpretation of the provisions of the acquisition agreement by both parties. In addition to
cash on-hand, the purchase price was financed through the issuance of common stock as described above, debt securities as described in Note 8,
common equity units as described in Note 9 and preferred shares as described in Note 14.
The acquisition is being accounted for using the purchase method of accounting, which requires that the assets and liabilities of Travelers be
measured at their fair value as of July 1, 2005.
Purchase Price Allocation and Goodwill — Preliminary
The purchase price has been allocated to the assets acquired and liabilities assumed using management’s best estimate of their fair values as of the
acquisition date. The computation of the purchase price and the allocation of the purchase price to the net assets acquired based upon their respective
fair values as of July 1, 2005, and the resulting goodwill, as revised, are presented below. During the fourth quarter of 2005, the Company revised the
purchase price allocation as a result of reviews of Travelers underwriting criteria performed in order to refine the estimate of fair values of assumed future
policy benefit liabilities. As a result of these reviews and actuarial analyses, and to be consistent with MetLife’s reserving methodologies, the Company
increased its estimate of fair value liabilities relating to a specific group of acquired life insurance policies. Consequently, the fair value of future policy
benefits assumed, deferred tax assets acquired and goodwill increased by $360 million, $126 million and $234 million, respectively. The Company
expects to complete its reviews and, if required, further refine its estimate of fair value of such liabilities by June 30, 2006. Additionally, the Company
received updated information regarding the fair values of certain assets and liabilities such as its investments in other limited partnerships, mortgage
loans, other assets and other liabilities resulting in a net increase of goodwill of $54 million. The fair value of certain other assets acquired and liabilities
assumed, including goodwill, may also be adjusted during the allocation period due to finalization of the purchase price to be paid to Citigroup as noted
previously, agreement between Citigroup and MetLife as to the tax basis purchase price to be allocated to the acquired subsidiaries, and receipt of
information regarding the estimation of certain fair values. In no case will the adjustments extend beyond one year from the acquisition date.
MetLife, Inc.
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