Travelers 2002 Annual Report Download - page 90

December 31 2002 2001
(In millions)
IDENTIFIABLE ASSETS
Property-liability insurance $38,333 $36,490
Asset management 1,081 855
Total reportable segments 39,414 37,345
Parent company, other operations,
consolidating eliminations and discontinued operations 506 976
Total assets $39,920 $38,321
Note 16, “Restructuring and Other Charges,” describes charges
we recorded during 2001 and 2000 and where they are included in
the foregoing tables.
22. ADOPTION OF ACCOUNTING POLICIES
In the first quarter of 2002, we began implementing the provisions
of SFAS No. 141, “Business Combinations” and SFAS No. 142,
“Goodwill and Other Intangible Assets,” which establish financial
accounting and reporting for acquired goodwill and other intangible
assets. The statement changes prior accounting practice in the way
intangible assets with indefinite useful lives, including goodwill, are
tested for impairment on an annual basis. Generally, it also requires
that those assets meeting the criteria for classification as intangible
assets with estimable useful lives be amortized to expense over those
lives, while intangible assets with indefinite useful lives and goodwill
are not to be amortized. As a result of implementing the provisions of
this statement, we did not record any goodwill amortization expense
in 2002. For the year of 2001, goodwill amortization expense totaled
$114 million. Amortization expense associated with intangible assets
totaled $18 million for 2002, compared with $2 million in the same
2001 period.
During the second quarter of 2002, we completed the evaluation
of our recorded goodwill for impairment in accordance with provisions
of SFAS No. 142, which required a two-step approach for determining
impairment of goodwill. The first step was to test for potential impair-
ment by comparing the fair value of our respective reporting units to
the carrying value of each unit. The second step would have meas-
ured the impairment loss by using the unit’s implied fair value as com-
pared to its carrying amount. As no impairment was indicated in the
first step, the second step was not necessary. This evaluation con-
cluded that none of our goodwill was impaired. In connection with our
reclassification of certain assets previously accounted for as goodwill
to other intangible assets in 2002, we established a deferred tax lia-
bility of $6 million in the second quarter of 2002. That provision was
classified as a cumulative effect of accounting change effective as of
January 1, 2002.
Related to our adoption of SFAS Nos. 141 and 142, we also
reviewed the amortization method and useful lives of existing intangi-
ble assets, and adjusted as appropriate. Generally, amortization was
accelerated and useful lives shortened.
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The following presents a summary of our acquired intangible
assets.
December 31, 2002
Gross Carrying Accumulated Net
AMORTIZABLE INTANGIBLE ASSETS Amount Amortization Amount
(In millions)
Customer relationships $67 $4 $63
Present value of future profits 69 16 53
Renewal rights 27 5 22
Internal use software 211
Total $165 $ 26 $ 139
At December 31, 2002, our estimated intangible asset amortiza-
tion expense for the next five years was as follows.
December 31, 2002
(In millions)
2003 $20
2004 17
2005 15
2006 13
2007 11
Thereafter 63
Total $139
The changes in the carrying value of goodwill from December 31,
2001 to December 31, 2002 sheet were as follows.
Balance at Goodwill Impairment Balance at
Goodwill by Segment Dec. 31, 2001 acquired losses Dec. 31, 2002
(In millions)
Specialty Commercial $ 36 $— $— $36
Commercial Lines 33 —— 33
Surety & Construction 14 12 — 26
International & Lloyd’s 7 11 — 18
Asset Management 519 233 — 752
Property-Liability
Investment Operations — 9— 9
Total $ 609 $265 $ — $ 874
The increase in goodwill in our Asset Management segment
resulted from Nuveen Investments’ purchase of shares from minority
shareholders, its acquisition of NWQ Investment Management, and
from final valuation of previously acquired goodwill. See Note 6 for a
discussion of the increase to the Specialty Commercial and Surety &
Construction segments. The increase in goodwill in our International
& Lloyd’s segment related to an increase in syndicate capacity at
Lloyd’s. The $9 million of goodwill acquired in Property Liability
Investment Operations was a result of the Platinum transaction, and
represents the excess value of the shares received over our share of
Platinum’s equity. See Note 2 for further discussion regarding the
Platinum transaction.