MetLife 2007 Annual Report Download - page 115

Adoption of New Accounting Pronouncements
Income Taxes
Effective January 1, 2007, the Company adopted FIN 48. FIN 48 clarifies the accounting for uncertainty in income tax recognized in a
company’s financial statements. FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be
sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements.
It also provides guidance on the recognition, measurement, and classification of income tax uncertainties, along with any related interest
and penalties. Previously recorded income tax benefits that no longer meet this standard are required to be charged to earnings in the
period that such determination is made.
As a result of the implementation of FIN 48, the Company recognized a $52 million increase in the liability for unrecognized tax benefits,
a $4 million decrease in the interest liability for unrecognized tax benefits, and a corresponding reduction to the January 1, 2007 balance of
retained earnings of $37 million, net of $11 million of minority interest. See also Note 15.
Insurance Contracts
Effective January 1, 2007, the Company adopted SOP 05-1 which provides guidance on accounting by insurance enterprises for DAC
on internal replacements of insurance and investment contracts other than those specifically described in SFAS 97, Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments.
SOP 05-1 defines an internal replacement and is effective for internal replacements occurring in fiscal years beginning after December 15,
2006. In addition, in February 2007, the American Institute of Certified Public Accountants (“AICPA”) issued related Technical Practice Aids
(“TPAs”) to provide further clarification of SOP 05-1. The TPAs became effective concurrently with the adoption of SOP 05-1.
As a result of the adoption of SOP 05-1 and the related TPAs, if an internal replacement modification substantially changes a contract,
then the DAC is written off immediately through income and any new deferrable costs associated with the new replacement are deferred. If
a contract modification does not substantially change the contract, the DAC amortization on the original contract will continue and any
acquisition costs associated with the related modification are immediately expensed.
The adoption of SOP 05-1 and the related TPAs resulted in a reduction to DAC and VOBA on January 1, 2007 and an acceleration of the
amortization period relating primarily to the Company’s group life and health insurance contracts that contain certain rate reset provisions.
PriortotheadoptionofSOP05-1,DAConsuchcontractswasamortized over the expected renewable life of the contract. Upon adoption
of SOP 05-1, DAC on such contracts is to be amortized over the rate reset period. The impact as of January 1, 2007 was a cumulative
effect adjustment of $292 million, net of income tax of $161 million, which was recorded as a reduction to retained earnings.
Defined Benefit and Other Postretirement Plans
Effective December 31, 2006, the Company adopted SFAS 158. The pronouncement revises financial reporting standards for defined
benefit pension and other postretirement plans by requiring the:
(i) recognition in the statement of financial position of the funded status of defined benefit plans measured as the difference
between the fair value of plan assets and the benefit obligation, which is the projected benefit obligation for pension plans and the
accumulated postretirement benefit obligation for other postretirement plans;
(ii) recognition as an adjustment to accumulated other comprehensive income (loss), net of income tax, those amounts of actuarial
gains and losses, prior service costs and credits, and net asset or obligation at transition that have not yet been included in net
periodic benefit costs as of the end of the year of adoption;
(iii) recognition of subsequent changes in funded status as a component of other comprehensive income;
(iv) measurement of benefit plan assets and obligations as of the date of the statement of financial position; and
(v) disclosure of additional information about the effects on the employer’s statement of financial position.
The adoption of SFAS 158 resulted in a reduction of $744 million, net of income tax, to accumulated other comprehensive income,
which is included as a component of total consolidated stockholders’ equity. As the Company’s measurement date for its pension and
other postretirement benefit plans is already December 31 there was no impact of adoption due to changes in measurement date. See also
“Summary of Significant Accounting Policies and Critical Accounting Estimates” and Note 17.
Stock Compensation Plans
As described previously, effective January 1, 2006, the Company adopted SFAS 123(r) including supplemental application guidance
issued by the U.S. Securities and Exchange Commission (“SEC”) in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment
(“SAB 107”) — using the modified prospective transition method. In accordance with the modified prospective transition method, results
for prior periods have not been restated. SFAS 123(r) requires that the cost of all stock-based transactions be measured at fair value and
recognized over the period during which a grantee is required to provide goods or services in exchange for the award. The Company had
previously adopted the fair value method of accounting for stock-based awards as prescribed by SFAS 123 on a prospective basis
effective January 1, 2003, and prior to January 1, 2003, accounted for its stock-based awards to employees under the intrinsic value
method prescribed by APB 25. The Company did not modify the substantive terms of any existing awards prior to adoption of SFAS 123(r).
Under the modified prospective transition method, compensation expense recognized during the year ended December 31, 2006
includes: (a) compensation expense for all stock-based awards granted prior to, but not yet vested as of January 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all stock-based
awards granted beginning January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(r).
The adoption of SFAS 123(r) did not have a significant impact on the Company’s financial position or results of operations as all stock-
based awards accounted for under the intrinsic value method prescribed by APB 25 had vested prior to the adoption date and the
Company had adopted the fair value recognition provisions of SFAS 123 on January 1, 2003. As required by SFAS 148, and carried
F-19MetLife, Inc.
MetLife, Inc.
Notes to Consolidated Financial Statements — (Continued)