-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WF1gsBXjT6bm2uBLTBKLMsD/ZIy4lhtlaGzbGcd9qd/iLA2W99YAHohqVoou874R bUsk4yjlOOMzVqBXY5223w== 0000950123-05-006862.txt : 20050611 0000950123-05-006862.hdr.sgml : 20050611 20050527164117 ACCESSION NUMBER: 0000950123-05-006862 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050526 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050527 DATE AS OF CHANGE: 20050527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METLIFE INC CENTRAL INDEX KEY: 0001099219 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 134075851 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15787 FILM NUMBER: 05864425 BUSINESS ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 BUSINESS PHONE: 2125782211 MAIL ADDRESS: STREET 1: 200 PARK AVENUE CITY: NEW YORK STATE: NY ZIP: 10166 8-K 1 y09380e8vk.txt METLIFE, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 27, 2005 METLIFE, INC. (Exact name of registrant as specified in charter) DELAWARE 1-15787 13-4075851 (State or other jurisdiction of (Commission file number) (IRS Employer incorporation) Identification No.)
--------------------- 200 PARK AVENUE, NEW YORK, NEW YORK 10166-0188 (Address of principal executive offices) (Zip Code)
(212) 578-2211 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE N/A (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 8.01. OTHER EVENTS On January 31, 2005, MetLife, Inc. ("MetLife") announced that it plans to acquire Travelers Insurance Company, excluding certain assets, most significantly, Primerica, from Citigroup Inc., and substantially all Citigroup's international insurance businesses ("Citigroup Life Insurance and Annuities"). For additional information concerning the proposed acquisition transaction, see MetLife's Current Reports on Form 8-K, including those filed on January 31, 2005, February 4, 2005 and May 13, 2005. The unaudited pro forma interim condensed consolidated financial information filed herewith as Exhibit 99.1, and incorporated herein by reference, gives effect to the proposed acquisition transaction as if it had occurred as of January 1, 2004 for purposes of the unaudited pro forma interim condensed consolidated statement of income and on March 31, 2005 for purposes of the unaudited pro forma interim condensed consolidated balance sheet. The unaudited condensed combined balance sheet of Citigroup Life Insurance and Annuities Assets to be Acquired and Liabilities to be Assumed as of March 31, 2005, and the related unaudited condensed combined statements of income, shareholder's equity and cash flows for the three months then ended, included in Exhibit 99.2, and incorporated herein by reference, have been furnished to MetLife by Citigroup Inc. On May 27, 2005, MetLife issued a press release announcing that it has received a subpoena from the Connecticut Attorney General requesting information regarding its participation in any finite reinsurance transactions and other information requests relating to finite insurance or reinsurance from other regulatory and governmental authorities. A copy of the press release is attached hereto as Exhibit 99.3 and is incorporated herein by reference. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits 99.1 MetLife, Inc.'s unaudited pro forma interim condensed consolidated balance sheet as of March 31, 2005 and unaudited pro forma interim condensed consolidated statement of income for the three months ended March 31, 2005. 99.2 Unaudited condensed combined balance sheet of Citigroup Life Insurance and Annuities Assets to be Acquired and Liabilities to be Assumed as of March 31, 2005 and the related unaudited condensed combined statements of income, shareholder's equity and cash flows for the three months ended March 31, 2005. 99.3 Press release of MetLife, Inc. dated May 27, 2005 regarding finite risk insurance information requests. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MetLife, Inc. By: /s/ Gwenn L. Carr ------------------------------------ Name: Gwenn L. Carr Title: Senior Vice-President and Secretary Date: May 27, 2005 2 EXHIBIT INDEX
99.1 MetLife, Inc.'s unaudited pro forma interim condensed consolidated balance sheet as of March 31, 2005 and unaudited pro forma interim condensed consolidated statement of income for the three months ended March 31, 2005. 99.2 Unaudited condensed combined balance sheet of Citigroup Life Insurance and Annuities Assets to be Acquired and Liabilities to be Assumed as of March 31, 2005 and the related unaudited condensed combined statements of income, shareholder's equity and cash flows for the three months ended March 31, 2005. 99.3 Press release of MetLife, Inc. dated May 27, 2005 regarding finite risk insurance information requests.
3 EX-99.1 2 y09380exv99w1.txt UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET EXHIBIT 99.1 UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION On January 31, 2005, MetLife, Inc. ("MetLife"), and Citigroup Inc. ("Citigroup"), entered into an Acquisition Agreement (the "Agreement"), pursuant to which MetLife agreed to acquire for $11.5 billion in consideration, subject to certain closing adjustments and financing arrangements, and receipt of regulatory approvals, all of the outstanding shares of capital stock of certain of the domestic and international insurance subsidiaries of Citigroup, referred to as the Citigroup Life Insurance and Annuities businesses ("Citigroup L&A"). The closing is expected to occur during the summer of 2005. The Agreement provides for Citigroup's execution of specific transactions to exclude certain assets and liabilities prior to the closing, and these transactions have been reflected in the Citigroup L&A unaudited historical interim condensed combined financial statements as if completed as of March 31, 2005. The Citigroup L&A unaudited interim condensed combined financial statements are included as an exhibit in the Form 8-K with which this financial information is filed. The following unaudited pro forma interim condensed consolidated financial information consolidates the unaudited historical interim condensed consolidated statement of income and unaudited historical interim condensed consolidated balance sheet of MetLife and the unaudited historical interim condensed combined statement of income and unaudited historical interim condensed combined balance sheet of Citigroup L&A. Those unaudited historical interim condensed financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The unaudited pro forma interim condensed consolidated financial information has been prepared using the assumptions described in the notes thereto. The unaudited pro forma interim condensed consolidated financial information below should be read in conjunction with the notes thereto and the unaudited historical interim condensed combined financial statements of Citigroup L&A, including the notes thereto, which are also included as an exhibit to the Form 8-K with which this financial information is filed, as well as in conjunction with the unaudited historical interim condensed consolidated financial information of MetLife included in its Quarterly Report on Form 10-Q for the three months ended March 31, 2005. This unaudited pro forma interim condensed consolidated financial information is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations of the consolidated company that would have actually occurred had the acquisition been effective during the period presented or of the future financial position or future results of operations of the consolidated company. The unaudited interim condensed consolidated financial information as of and for the period presented may have been different had the companies actually been consolidated as of or during that period due to, among other factors, possible revenue enhancements, expense efficiencies and integration costs. Additionally, as discussed in Note 1, the actual allocation of the purchase price to the acquired assets and liabilities may vary materially from the assumptions used in preparing the unaudited pro forma interim condensed consolidated financial information. The unaudited pro forma interim condensed consolidated financial information below should also be read in conjunction with the Form 8-K filed by MetLife on May 13, 2005. Such Form 8-K includes as exhibits: 1) the historical combined financial statements of Citigroup L&A as of and for the year ended December 31, 2004 and 2) the unaudited pro forma condensed consolidated financial information and notes thereto as of and for the year ended December 31, 2004. The unaudited pro forma condensed consolidated financial information gives effect to the proposed acquisition as if it had occurred at December 31, 2004 for the purposes of the unaudited pro forma condensed consolidated balance sheet and at January 1, 2004 for the purposes of the unaudited pro forma condensed consolidated statement of income. This information has not been updated to reflect the changes in the pro forma effects in the assumption of the March 31, 2005 acquisition date. The historical consolidated financial statements of MetLife as of and for the year ended December 31, 2004 which are an integral part of the unaudited pro forma condensed consolidated financial information as of and for the year ended December 31, 2004 are included in MetLife's Annual Report on Form 10-K. METLIFE, INC. UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2005
HISTORICAL PRO FORMA PRO FORMA ------------------------ PURCHASE FINANCING PRO FORMA METLIFE CITIGROUP L&A ADJUSTMENTS ADJUSTMENTS NOTES CONSOLIDATED -------- ------------- ----------- ----------- ----------------- ------------ (IN MILLIONS, EXCEPT PER SHARE DATA) INCREASE/ (DECREASE) ASSETS Investments: Fixed maturities available-for-sale, at fair value....................... $182,519 $44,508 $ (88) $(1,404) 3(a), 3(b) $225,535 Equity securities, at fair value...... 2,516 391 -- -- 2,907 Mortgage and other loans.............. 31,977 2,349 43 -- 3(c) 34,369 Policy loans.......................... 8,953 894 5 -- 3(d) 9,852 Real estate and real estate joint ventures held-for-investment........ 3,458 279 127 -- 3(e) 3,864 Real estate held-for-sale............. 848 29 13 (478) 3(f), 3(g) 412 Other limited partnership interests... 3,051 1,326 -- -- 4,377 Short-term investments................ 2,551 3,364 -- -- 5,915 Trading securities.................... 134 1,081 -- -- 1,215 Other invested assets................. 4,960 338 234 -- 3(h) 5,532 -------- ------- -------- ------- -------- TOTAL INVESTMENTS................... 240,967 54,559 334 (1,882) 293,978 Cash and cash equivalents............... 3,925 648 (10,623) 10,623 3(i) 4,573 Common stock issuance and distribution.......................... -- -- (1,000) 1,000 3(i) -- Accrued investment income............... 2,433 560 -- -- 2,993 Premiums and other receivables.......... 7,515 4,146 1,137 -- 3(j) 12,798 Deferred policy acquisition costs....... 13,130 3,035 (3,035) -- 3(l) 13,130 Value of business acquired.............. 1,668 90 2,904 -- 3(m), 3(n) 4,662 Goodwill................................ 611 226 4,292 -- 3(o), 3(p) 5,129 Other intangible assets................. 14 -- 185 -- 3(q) 199 Other assets............................ 6,622 1,617 1 74 3(r), 3(ff), 3(s) 8,314 Separate account assets................. 85,786 31,052 -- -- 116,838 -------- ------- -------- ------- -------- TOTAL ASSETS........................ $362,671 $95,933 $ (5,805) $ 9,815 $462,614 ======== ======= ======== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Future policy benefits................ $100,630 $12,679 $ 3,008 $ -- 3(j), 3(ff) $116,317 Policyholder account balances......... 85,802 35,633 1,831 -- 3(k) 123,266 Other policyholder funds.............. 7,226 1,604 -- -- 8,830 Policyholder dividends payable........ 1,048 -- -- -- 1,048 Policyholder dividend obligation...... 1,737 -- -- -- 1,737 Short-term debt....................... 1,120 -- -- 1,000 3(t) 2,120 Long-term debt........................ 7,414 (23) (87) 4,700 3(a), 3(t) 12,004 Shares subject to mandatory redemption.......................... 278 -- -- -- 278 Current income taxes payable.......... 31 8 50 460 3(ff), 3(g) 549 Deferred income taxes payable......... 2,414 694 (1,709) (51) 3(u), 3(g) 1,348 Payables under securities loaned transactions........................ 31,713 2,331 -- -- 34,044 Trading securities sold not yet purchased........................... -- 369 -- -- 369 Other liabilities..................... 14,434 2,915 (227) 111 3(v), 3(w) 17,233 Separate account liabilities.......... 85,786 31,052 -- -- 116,838 -------- ------- -------- ------- -------- TOTAL LIABILITIES................... 339,633 87,262 2,866 6,220 435,981 -------- ------- -------- ------- -------- Stockholders' Equity: Common stock, par value $0.01 per share;.............................. 8 -- -- -- 8 Additional paid-in capital............ 15,043 -- -- 889 3(t), 3(w) 15,932 Preferred stock, par value $0.01 per share;.............................. -- -- -- -- -- Additional paid-in capital............ -- -- -- 1,948 3(t) 1,948 Common stock of Citigroup L&A......... -- 131 (131) -- 3(x) -- Additional paid-in capital............ -- 3,138 (3,138) -- 3(x) -- Retained earnings..................... 7,595 4,238 (4,238) 758 3(x), 3(g) 8,353 Treasury stock, at cost;.............. (1,764) -- -- -- (1,764) Accumulated other comprehensive income.............................. 2,156 1,164 (1,164) -- 3(x) 2,156 -------- ------- -------- ------- -------- TOTAL STOCKHOLDERS' EQUITY.......... 23,038 8,671 (8,671) 3,595 26,633 -------- ------- -------- ------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $362,671 $95,933 $ (5,805) $ 9,815 $462,614 ======== ======= ======== ======= ======== See accompanying notes to unaudited pro forma interim condensed consolidated financial information.
2 METLIFE, INC. UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2005
HISTORICAL PRO FORMA PRO FORMA ----------------------- PURCHASE FINANCING PRO FORMA METLIFE CITIGROUP L&A ADJUSTMENTS ADJUSTMENTS NOTES CONSOLIDATED ------- ------------- ----------- ----------- ------------ ------------ (IN MILLIONS, EXCEPT PER SHARE DATA) INCREASE/(DECREASE) REVENUES Premiums............................... $6,002 $ 267 $ -- $ -- $6,269 Universal life and investment-type product policy fees.................. 791 232 (1) -- 3(y) 1,022 Net investment income.................. 3,217 759 (78) (23) 3(z), 3(aa) 3,875 Other revenues......................... 299 50 (19) -- 3(bb) 330 Net investment gains (losses).......... (15) 54 -- -- 39 ------ ------ ----- ---- ------ TOTAL REVENUES................... 10,294 1,362 (98) (23) 11,535 ------ ------ ----- ---- ------ EXPENSES Policyholder benefits and claims....... 5,962 320 (10) -- 3(j) 6,272 Interest credited to policyholder account balances..................... 795 371 (62) -- 3(k) 1,104 Policyholder dividends................. 415 -- -- -- 415 Other expenses......................... 1,973 274 (39) 70 3(cc), 3(dd) 2,278 ------ ------ ----- ---- ------ TOTAL EXPENSES................... 9,145 965 (111) 70 10,069 ------ ------ ----- ---- ------ Income from continuing operations before provision for income taxes.... 1,149 397 13 (93) 1,466 Provision for income taxes............. 350 124 4 (32) 3(ee) 446 ------ ------ ----- ---- ------ INCOME FROM CONTINUING OPERATIONS...... $ 799 $ 273 $ 9 $(61) $1,020 ====== ====== ===== ==== ====== EARNINGS PER SHARE Income from continuing operations available to common stockholders Basic................................ $ 1.09 $ 1.31 ====== ====== Diluted.............................. $ 1.08 $ 1.30 ====== ====== Weighted average number of common shares outstanding Basic.............................. 734.0 757.0 ====== ====== Diluted............................ 739.6 762.6 ====== ====== See accompanying notes to unaudited pro forma interim condensed consolidated financial information.
3 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION 1. BASIS OF PRESENTATION The unaudited pro forma interim condensed consolidated financial information gives effect to the proposed acquisition as if it had occurred at March 31, 2005 for the purposes of the unaudited pro forma interim condensed consolidated balance sheet and at January 1, 2004 for the purposes of the unaudited pro forma interim condensed consolidated statement of income. The unaudited pro forma interim condensed consolidated financial information has been prepared by MetLife's management and is based on MetLife's unaudited historical interim condensed consolidated financial statements and Citigroup L&A's unaudited historical combined financial statements, which have been prepared by Citigroup. Certain amounts from Citigroup L&A's unaudited historical combined financial statements have been reclassified to conform to the MetLife presentation. In accordance with Article 11 of Regulation S-X, discontinued operations and cumulative effects of changes in accounting and the related earnings per share data have been excluded from the presentation of the unaudited pro forma interim condensed consolidated statement of income. This unaudited pro forma interim condensed consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). The unaudited pro forma interim condensed consolidated balance sheet at March 31, 2005 and the unaudited pro forma interim condensed consolidated statement of income for the three months ended March 31, 2005 have been prepared using the following information: (a) Unaudited historical interim condensed consolidated financial statements of MetLife as of and for the three months ended March 31, 2005; (b) Unaudited historical interim combined financial statements of Citigroup L&A as of and for the three months ended March 31, 2005; and (c) Such other supplementary information as considered necessary to reflect the acquisition in the unaudited pro forma interim condensed consolidated financial information. The pro forma adjustments reflecting the acquisition of Citigroup L&A under the purchase method of accounting are based on certain estimates and assumptions. The pro forma adjustments may be revised as additional information becomes available. The actual adjustments upon consummation of the acquisition and the allocation of the purchase price of Citigroup L&A will depend on a number of factors, including additional financial information available at such time, changes in values and changes in Citigroup L&A's operating results between the date of preparation of this unaudited pro forma interim condensed consolidated financial information and the effective date of the acquisition. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the differences may be material. MetLife's management believes that its assumptions provide a reasonable basis for presenting all of the significant effects of the transactions contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma interim condensed consolidated financial information. The excess of the purchase price over the estimated fair value of the net assets acquired, including identifiable intangible assets, has been allocated to goodwill. The unaudited pro forma interim condensed consolidated financial information does not include the anticipated financial benefits or expenses from such items as expense efficiencies or revenue enhancements arising from the acquisition nor does the unaudited pro forma interim condensed consolidated financial information include the portion of restructuring and integration costs to be incurred by MetLife. The unaudited pro forma interim condensed consolidated financial information is not intended to reflect the results of operations or the financial position that would have resulted had the acquisition been affected on the dates indicated, or the results that may be obtained by the consolidated company in the future. The unaudited pro forma interim condensed consolidated financial information should be read in conjunction with 4 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) the unaudited historical interim condensed consolidated financial statements of MetLife included in MetLife's Quarterly Report on Form 10-Q for the three months ended March 31, 2005, the unaudited historical combined financial statements of Citigroup L&A for the three months ended March 31, 2005 included as an exhibit in the Form 8-K with which this financial information is filed, and the other information in the Form 8-K. The unaudited pro forma interim condensed consolidated financial information should also be read in conjunction with the Form 8-K filed by MetLife on May 13, 2005. Such Form 8-K includes as exhibits: 1) the historical combined financial statements of Citigroup L&A as of and for the year ended December 31, 2004 and 2) the unaudited pro forma condensed consolidated financial information and notes thereto as of and for the year ended December 31, 2004. The historical consolidated financial statements of MetLife as of and for the year ended December 31, 2004 which are an integral part of the unaudited pro forma condensed consolidated financial information as of and for the year ended December 31, 2004 are included in MetLife's Annual Report on Form 10-K. 2. PURCHASE PRICE AND FINANCING CONSIDERATIONS Pursuant to the Agreement, MetLife will pay Citigroup $11.5 billion in consideration for all of the outstanding shares of capital stock of certain of the domestic and international insurance subsidiaries of Citigroup, constituting the Citigroup L&A businesses. The Agreement provides for Citigroup's execution of specific transactions to exclude certain assets and liabilities prior to the closing, and these transactions have been reflected in the Citigroup L&A unaudited historical interim condensed combined financial statements as if completed as of March 31, 2005. The closing is expected to occur during the summer of 2005. This purchase price is subject to certain adjustments at closing, including adjustments based on differences between estimated and actual equity at closing and agreed-upon minimum risk based capital ("RBC") levels. The potential purchase price adjustments are more fully described in the Agreement. Under the terms of the Agreement, MetLife may, at its discretion, issue up to $3 billion of its common stock to Citigroup as part of the funding of the purchase price. The remainder of the purchase price must be paid in cash. The financing related to the cash portion of the purchase price will be finalized immediately prior to the closing of the transaction and may include the use of short-term bridge financing. The unaudited pro forma interim condensed consolidated financial information included herein reflects management's best estimate of the forms and amounts of financing at the time this unaudited pro forma interim condensed consolidated financial information was prepared. The actual form of financing of the acquisition may involve different forms of financing and/or different amounts of the same financing vehicles. These differences in form and amount of financing could result in materially different pro forma adjustments than those presented in this unaudited pro forma interim condensed consolidated financial information. The actual financing forms and amounts of financing will not be determined until shortly before the closing date of the acquisition. The unaudited pro forma interim condensed consolidated financial information presented herein assumes the following: (i) MetLife will issue $1 billion, 23.0 million shares, of common stock to Citigroup in the transaction. For purposes of computing the number of shares of common stock to be issued to Citigroup, the price of the MetLife common stock to be issued is assumed to be $43.53 per common share, which represents the average closing price of MetLife's common stock on the New York Stock Exchange for the ten-day period ending May 26, 2005. The impact on pro forma earnings per share of issuing the maximum amount, $3 billion, of consideration in common stock is described in Note 4. The number of shares to be issued for purposes of that calculation was computed using the same average closing price as described above. 5 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) (ii) The remaining $10.5 billion of purchase price will be paid to Citigroup in cash and will be funded by MetLife in part through: a) The sale of a real estate property and available-for-sale fixed maturity securities. The unaudited pro forma interim condensed consolidated statement of income reflects the reduction in investment income from the sale of such fixed maturity securities. The unaudited pro forma interim condensed consolidated statement of income does not reflect the investment income or the gain/(loss) on the sale of such investments as such investment income and gains/(losses) would be reported as discontinued operations or are sales that would not be part of the normal course of business. b) The issuance of commercial paper and various forms of securities including senior debt, mandatorily convertible equity units, and perpetual preferred stock. The unaudited pro forma interim condensed consolidated statement of income reflects the impact of these financing arrangements using MetLife's current anticipated borrowing and dividend rates for such types of securities. These assumptions are made based on the best information available at the time the unaudited pro forma interim condensed consolidated financial information was prepared. Changes in risk-free interest rates and credit spreads could change the assumed borrowing and dividend rates for such types of securities. c) Bridge financing which would be a short-term substitution for some or all of the longer term financing alternatives may be considered. The amount and term of the bridge financing will depend upon the timing of the closing of the transaction in combination with market access and market conditions at such time. 6 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) For purposes of presentation in the unaudited pro forma interim condensed consolidated financial information, the financing of the acquisition and allocation of purchase price is assumed to be as follows:
EXPECTED RANGE OF ANNUAL EXPECTED ANTICIPATED POTENTIAL INTEREST/ INTEREST/DIVIDEND(4)(5) FINANCING FINANCING DIVIDEND ----------------------------- AMOUNT AMOUNTS RATE(4)(5) ANNUAL QUARTERLY ------------- ------------- ---------- ------------- ------------- (IN MILLIONS) (IN MILLIONS) (%) (IN MILLIONS) (IN MILLIONS) SOURCES: Cash................................ $ 3,049 $2,500-3,500 (1)(2) (1)(2) (1)(2) Debt................................ 3,700 3,000-5,000 2.85-6.00% $175 $44 Mandatorily convertible equity units............................. 2,000 2,000-3,000 3.50-4.50% 80 20 Perpetual preferred stock........... 2,000 1,000-2,000 4.00-6.50% 120 30 MetLife, Inc. common stock.......... 1,000 1,000-3,000 (3) (3) (3) ------- Total sources of funds....... $11,749 ======= USES: Debt and equity issuance costs -- See pro forma adjustments 3(s) and 3(t) in Note 3........... $ 126 ------- Other transaction costs -- See pro forma adjustment 3(i) in Note 3... 123 Purchase price paid to Citigroup.... 11,500 ------- Total purchase price.............. 11,623 ------- Total uses of funds............ $11,749 ======= PURCHASE PRICE ALLOCATION: Total purchase price................ $11,623 ------- Net balance sheet assets acquired: Carrying value of net balance sheet assets prior to the acquisition... 8,671 Estimated fair value adjustments.... (1,566) ------- Estimated fair value of net balance sheet assets acquired............. 7,105 ------- Goodwill............................ $ 4,518 =======
- --------------- (1) A real estate property with a carrying value of $478 million was sold on May 4, 2005 for $1,720 million, resulting in a gain of $758 million, net of current income taxes payable of $460 million, deferred income taxes of ($51) million and transaction costs of $75 million. The real estate was sold to facilitate the funding of the acquisition. Net investment income on such real estate property is $67 million during 2004 and $16 million during the three months ended March 31, 2005. The sale of the real estate property is reflected as a pro forma adjustment in the unaudited pro forma interim condensed consolidated balance sheet. The unaudited pro forma interim condensed consolidated statement of income does not reflect the anticipated gain on the sale of such investment or the related net investment income, which are reported as discontinued operations. See pro forma adjustment 3(g). (2) The sale of fixed maturities with a carrying value of $1,404 million have been assumed sold to fund the purchase price. The net investment income on such fixed maturities of $92 million for the year 2004 was computed based upon the average yield of fixed maturities of 6.55% during 2004. The sale of the fixed maturities and the elimination of one fourth of the related annual investment income, $23 million for the three months ended March 31, 2005, are reflected as pro forma adjustments in the unaudited pro forma interim condensed consolidated balance sheet and unaudited pro forma interim condensed consolidated 7 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) statement of income, respectively. Any gain/loss on the sale of such investments would not be part of the normal course of business and, as such, has not been reflected in the accompanying unaudited pro forma interim condensed consolidated statement of income for the three months ended March 31, 2005. See pro forma adjustment 3(b). (3) Common stock dividend rates are set annually and are not reflected in the unaudited pro forma interim condensed consolidated financial information. (4) Debt and perpetual preferred stock may be issued in one or more series. Debt securities are expected to consist of a combination of instruments with varying maturities and interest rates, which may be fixed or floating. The perpetual preferred stock is also expected to consist of a mix of fixed and floating rate issuances. The ranges of interest and dividend rates noted above, which have been used to calculate the impact of the financing on the unaudited pro forma interim condensed consolidated financial information, reflect the range associated with such potential issuances and are based on MetLife's borrowing rates to the date of this Form 8-K. The actual interest and dividend rates may differ from those estimated above. The range of interest rates presented above relative to the mandatorily convertible equity units (MCEUs) reflects only the interest rate on the debt portion of such securities. The rate on the MCEUs presented above does not reflect the contractual payment rate on the forward share purchase contract associated with such securities, which has been assumed to be 2%, and is reflected on a discounted basis as a $111 million reduction in additional paid-in capital. The discount of such contractual payments is amortized into income over the estimated three year term of such contracts. MetLife's borrowing rates are sensitive to changes in risk-free rates and credit spreads. An increase or decrease in composite interest rates of one-quarter of a percent on debt issuances would result in a change in annual interest expense of $13 million ($3 million quarterly). Preferred dividends would change by $5 million ($1 million quarterly) as a result of a one-quarter of a percent change in dividend rates and the related impact on earnings per share would be minor. (5) In addition to the financing alternatives shown above, MetLife entered into a $7 billion senior bridge credit facility with Bank of America N.A. Funding under the senior bridge credit facility, if it occurs, may occur in up to two parts, so long as the first funding relates to the acquisition of not less then 80% of the value of the assets contemplated to be acquired pursuant to the Agreement. The net cash proceeds of certain of the financing alternatives shown above will be used to repay or reduce the amount available under the senior bridge credit facility. Loans under the senior bridge credit facility may be base rate loans or eurodollar rate loans. Base rate loans bear interest at the higher of (i) the Federal Funds Rate plus 1/2 of 1%, and (ii) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate. Eurodollar rate loans bear interest at LIBOR divided by 1.00 minus the reserve percentage in effect under regulations issued from time to time by the Board of Governors of the Federal Reserve System of the United States for determining the maximum reserve requirement with respect to eurocurrency funding. Any amounts borrowed under the senior bridge credit facility must be repaid by the 364th day after the earlier of (i) the seventh day prior to the first closing date of the Acquisition, and (ii) June 24, 2005. As the bridge financing is expected to be temporary in nature, it would be a substitute for certain of the aforementioned financing alternatives, and would bear a short-term interest rate; therefore, no additional interest expense has been reflected in the accompanying unaudited pro forma interim condensed consolidated financial information. The purchase price is allocated to balance sheet assets acquired (including identifiable intangible assets arising from the acquisition) and liabilities assumed based on their estimated fair value. The fair value adjustments to the Citigroup L&A unaudited historical interim condensed combined balance sheet in connection with the acquisition are described below in Note 3. The excess of the total purchase consideration over the estimated fair value of the net assets acquired, together with capitalized costs, is allocated to goodwill. 8 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) 3. PRO FORMA ADJUSTMENTS ADJUSTMENTS As discussed above, these pro forma adjustments are based on certain estimates and assumptions made as of the date of the unaudited pro forma interim condensed consolidated financial information. The actual adjustments will depend on a number of factors, including changes in the estimated fair value of net balance sheet assets and operating results of Citigroup L&A between March 31, 2005 and the effective date of the acquisition. MetLife expects to make such adjustments at the effective date of the acquisition. These adjustments may be different from the adjustments made to prepare the unaudited pro forma interim condensed consolidated financial information and such differences may be material. (a) Elimination of the fair value of $88 million in fixed maturities available-for-sale held by Citigroup and issued by MetLife and the related historical cost of the debt securities issued by MetLife of $87 million. For the three months ended March 31, 2005, the related interest expense to MetLife and interest income to Citigroup L&A of $2 million has also been eliminated in the accompanying unaudited pro forma interim condensed consolidated statement of income. (b) Sale by MetLife of fixed maturities available-for-sale with a carrying value of $1,404 million to fund the acquisition of Citigroup L&A. The unaudited pro forma interim condensed consolidated statement of income reflects a reduction in net investment income as a result of the assumption that the sale of such fixed maturity securities would have occurred at the beginning of 2004. The net investment income foregone is computed based upon the average yield of fixed maturities of 6.55% in 2004 (annually $92 million) and is $23 million during the three months ended March 31, 2005. Any gain/loss on the sale of such investments would not be part of the normal course of business and, as such, has not been reflected in the accompanying unaudited pro forma condensed consolidated statement of income. (c) Fair value adjustment of $43 million for the difference between the estimated fair value and carrying value of Citigroup L&A's investment in mortgage and other loans. Related amortization of the fair value adjustment during the three months ended March 31, 2005 is estimated to be $4 million in the unaudited pro forma interim condensed consolidated statement of income for the three months ended March 31, 2005. (d) Fair value adjustment of $5 million for the difference between the estimated fair value and carrying value of Citigroup L&A's investment in policy loans. Related amortization of the fair value adjustment during the three months ended March 31, 2005 is immaterial in the unaudited pro forma interim condensed consolidated statement of income. (e) Fair value adjustment of $127 million relates to Citigroup L&A's investment in real estate and real estate joint ventures held-for-investment. Related amortization of the fair value adjustment during the three months ended March 31, 2005 is estimated at $1 million and is reflected as a reduction in net investment income in the unaudited pro forma interim condensed consolidated statement of income. (f) Fair value adjustment of $13 million relates to Citigroup L&A's investment in real estate held-for-sale. No related amortization of the fair value adjustment was estimated to have occurred during the three months ended March 31, 2005. (g) A real estate property with a carrying value of $478 million was sold on May 4, 2005 for $1,720 million, resulting in a gain of $758 million, net of current income taxes payable of $460 million, deferred income taxes of ($51) million and transaction costs of $75 million. The real estate property was sold to facilitate the funding of the transaction. As the gain and the net investment income is reported as discontinued operations, it has not been reflected in the 9 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) accompanying unaudited pro forma interim condensed consolidated statement of income. The gain has been reflected as an increase in equity in the accompanying unaudited pro forma interim condensed consolidated balance sheet. (h) Fair value adjustment of $234 million for the difference between the estimated fair value and carrying value of Citigroup L&A's investment in other invested assets -- principally the purchase accounting adjustment related to the elimination of the historical deferred policy acquisition costs and the establishment of value of business acquired ("VOBA") related to certain joint ventures acquired. Related amortization of the fair value adjustment during the three months ended March 31, 2005 is estimated at $3 million and is reflected as a reduction in other revenues in the unaudited pro forma interim condensed consolidated statement of income. (i) The pro forma financing adjustment represents the cash and cash equivalent position of $10,623 million resulting from the issuance of the commercial paper, senior debt, mandatorily convertible equity units, and perpetual preferred stock as well as the sale of real estate and fixed maturity securities. The common stock issuance of $1,000 million is reflected separately from the cash financing sources in the pro forma financing adjustments column. The remittance to Citigroup of $10,500 million of cash and $1,000 million in common stock to acquire Citigroup L&A, plus transaction costs to other parties, is reflected in the pro forma purchase adjustments column. The transaction costs of $123 million represent an estimate of the costs that the Company expects to incur over a two year period. These costs consist primarily of investment banker and legal fees, severance payments, relocation costs, lease terminations, and closing of facilities of Citigroup L&A and have been included in the purchase price. Actual costs may vary from such estimates. (j) The pro forma purchase adjustment of $1,137 is comprised of an adjustment of $1,571 million to reinsurance recoverable representing an increase in reinsurance recoverable for benefits ceded to reinsurers and is computed using the same assumptions that were used to determine the purchase accounting adjustment to the liability for future policy benefits offset by the elimination of the reinsurance recoverable on the liability for future policy benefits of $434 between MetLife and Travelers Insurance Company, a subsidiary of Citigroup L&A, related to a reinsurance agreement between the two entities which will become an intercompany arrangement upon acquisition. The pro forma purchase adjustment of $3,008 is comprised of an adjustment to the liability for future policy benefits of $3,222 million representing the difference between the Citigroup L&A carrying value of such liabilities and the purchase accounting basis of such liabilities using current assumptions, plus an adjustment of $212 million related to Citigroup L&A's Argentinian operations as described in pro forma adjustments 3(ff)(i) and (ii), and offset by the elimination of reinsurance recoverable on the liability for future policy benefits of $426 million between MetLife and Travelers Insurance Company. Amortization of the adjustment to the liability for future policy benefits resulted in a decrease in policyholder benefits and claims of $10 million for the three months ended March 31, 2005. (k) The adjustment to policyholder account balances of $1,831 million represents the adjustment of the Citigroup L&A's carrying value to amounts based on expected liability cash flows discounted at current crediting rates. Interest credited to policyholder account balances for the three months ended March 31, 2005 decreased by $62 million as a result of the revaluation of policyholder account balances. (l) Elimination of Citigroup L&A's historical deferred policy acquisition costs of $3,035 million, and related amortization of $108 million during the three months ended March 31, 2005. 10 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) (m) Elimination of Citigroup L&A's historical VOBA of $90 million and related amortization for the three months ended March 31, 2005 of $2 million. (n) The VOBA reflects the estimated fair value of in-force contracts and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the life insurance and annuity contracts in force at the acquisition date. VOBA is based on actuarially determined projections, by each block of business, of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, operating expenses, investment returns and other factors. Actual experience on the purchased business may vary from these projections. An 11.5% discount rate is used to value VOBA. VOBA is amortized in relation to estimated gross profits or premiums, depending on product type. If estimated gross profits or premiums differ from expectations, the amortization of VOBA is adjusted to reflect actual experience. At March 31, 2005, the VOBA balance is estimated at $2,994 million. The estimated amortization for the three months ended March 31, 2005 is $73 million. The following table provides an estimated amortization of the pro forma consolidated VOBA from 2005 to 2009:
(IN MILLIONS) Nine months ended December 31, 2005......................... $233 2006........................................................ $307 2007........................................................ $292 2008........................................................ $268 2009........................................................ $242
(o) Elimination of Citigroup L&A's historical goodwill of $226 million. (p) Represents the goodwill of $4,518 million arising from the transaction. See computation in Note 2. (q) Represents the recognition of identifiable other intangible assets, comprised of the Citigroup L&A distribution agreements and customer relationships acquired as a part of the purchase. The estimated fair value of the distribution agreements and customer relationships are $173 million and $12 million, respectively, for a total of $185 million. The identifiable other intangibles will be amortized in relation to the expected economic benefits of the agreement. The estimated amortization for the three months ended March 31, 2005 is not material. (r) Fair value adjustment of $1 million for the difference between the estimated fair value and carrying value of Citigroup L&A's other assets of $24 million and a recoverable from Citigroup of $25 million as described in pro forma adjustment 3(ff)(iii). The estimated amortization for the three months ended March 31, 2005 is not material. (s) The pro forma financing adjustment represents the costs associated with the issuance of commercial paper, senior debt and mandatorily convertible equity units of $74 million. During the three months ended March 31, 2005, $5 million of such costs are assumed to be amortized. (t) The pro forma financing adjustment to debt represents the issuance of $1,000 million of commercial paper, $2,700 million of senior debt, and $2,000 million of mandatorily convertible equity units as described in Note 2. Related interest expense is also described in Note 2. Related debt issuance costs, and their amortization, are described in pro forma adjustment 3(s). The pro forma financing adjustment to equity represents the issuance of $1,000 million of common stock to Citigroup and $2,000 million of perpetual preferred shares as described in Note 2. Approximately $52 million in costs is associated with the issuance of the perpetual preferred stock and has been reflected as a reduction of their carrying value. 11 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) (u) Deferred income taxes are adjusted to reflect the income tax effects of the pro forma purchase adjustments and the adjustment of the tax basis of the assets and liabilities acquired as a result of an election under Internal Revenue Code Section 338. The net effect of such adjustments is $1,709 million. The deferred income tax asset is reduced by a valuation allowance of $115 million related to operations in Argentina. (v) The pro forma purchase adjustment of $227 million consists of the fair value adjustment to decrease other liabilities for the difference between the estimated fair value and carrying value of Citigroup L&A's other liabilities. (w) The pro forma financing adjustment of $111 million records the estimated present value of the contractual payments to be made under the terms of the variable share forward contract component of the mandatorily convertible equity units. Also, a pro forma financing adjustment of $1 million has been made to record three months of accretion on that accrued balance. See Note 2 for further discussion of the terms of the mandatorily convertible equity units. (x) Elimination of Citigroup L&A's historical equity balances. (y) The pro forma adjustment of $1 million represents a reclassification of $10 million in surrender fees from other revenues to universal life and investment-type policy fees offset by the elimination of $11 million in amortization of deferred policy fees resulting from the elimination of such deferred revenue, included within the other liabilities pro forma adjustment 3(v), in purchase accounting. (z) Decrease in net investment income relates to pro forma purchase adjustments as follows: 1) Amortization of the increase in fair value fixed maturities available-for-sale.......................................... $(71) 2) Amortization of the increase in fair value of mortgage loans....................................................... 3(c) (4) 3) Amortization of the increase in real estate held-for-investment......................................... 3(e) (1) 4) Elimination of investment income on the MetLife securities held by Citigroup........................................... 3(a) (2) ---- $(78) ====
(aa) Represents the elimination of the investment income on fixed maturity securities of $23 million as described in pro forma adjustment 3(b). (bb) Represents a reclassification of $10 million in surrender fees from other revenues to universal life and investment-type policy fees, plus the elimination of $6 million in amortization of deferred ceding commission income resulting from the elimination of such deferred revenue, included within the other liabilities adjustment in pro forma purchase adjustment 3(v) and the amortization of the fair value of other invested assets of $3 million as described in pro forma adjustment 3(h). (cc) Decrease in other expenses relates to pro forma purchase adjustments as follows: 1) Elimination of intercompany interest expense................ 3(a) $ (2) 2) Elimination of amortization on historical deferred policy acquisition costs........................................... 3(l) (108) 3) Elimination of historical amortization of VOBA.............. 3(m) (2) 4) Amortization of VOBA........................................ 3(n) 73 ---- $(39) ====
(dd) Interest expense on financing of transaction of $64 million is disclosed in Note 2, amortization of debt issuance costs of $5 million in pro forma financing adjustment 3(s) and $1 million in accretion on accrued contractual payments on mandatorily convertible equity units in pro forma financing adjustment 3(w) for total interest expense of $70 million. 12 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) (ee) Represents the income tax effect of all unaudited pro forma condensed consolidated statement of income adjustments using a tax rate of 35%. (ff) As a part of the acquisition, MetLife will acquire Citigroup L&A's insurance operations in Argentina. The Argentinian economic, regulatory and legal environment, including interpretation of laws and regulations by regulators and courts, is uncertain. Potential legal or governmental actions related to pension reform, fiduciary responsibilities, performance guarantees and tax rulings could adversely affect the results of the combined company as reflected in the accompanying unaudited pro forma interim condensed consolidated financial information. Upon acquisition there are certain liabilities which will be established in purchase accounting as follows (subject to any adjustments to reflect changes in Citigroup L&A's closing balance sheet): (i) In order to conform to MetLife's interpretation of applicable Argentine law, death and disability liabilities will increase by an estimated $107 million in Citigroup L&A's managed pension business in Argentina. This increase reflects additional death and disability claims that have occurred through March 31, 2005 but had not yet been approved by the Argentine regulator. MetLife's policy has been to accrue a liability for incurred claims in excess of the claims-made amounts, reflecting management's belief that applicable Argentine law does not relieve the managed pension business from providing for such additional claims. The accrued liability recorded by Citigroup L&A as of March 31, 2005 reflects Citigroup's belief that the managed pension business is only obligated under applicable Argentine law to provide group claims-made coverage to the managed pension business customers. (ii) An additional liability of $105 million will be established related to litigation and an impending Supreme Court ruling in connection with the pesification of certain policyholder liabilities from U.S.-dollar-denominated insurance policies in January 2002 when the Argentina government converted all foreign currency denominated financial contracts to Argentinian pesos. The unaudited historical interim condensed combined financial statements of Citigroup L&A reflect a liability for future policy benefits for the affected insurance policies based on a conversion ratio of one Argentine peso to one U.S. dollar adjusted by CER (inflation index), which is the conversion ratio specified by the conversion law and implementing regulations for these policies. However, throughout the country and affecting all insurance companies, policyholders have challenged the legality of the conversion of their policies to pesos in various court proceedings. When policyholders have brought similar actions against MetLife's Argentinian insurance companies, MetLife has accrued a liability, which it believes is both probable and reasonably estimable, for the difference between the value of the policy based on its original U.S. dollar terms and current open market currency exchange rates. In accordance with the requirements of Statement of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No. 141"), a pro forma adjustment of $35 million has been recorded to reflect MetLife's estimate of the present value of such policy liabilities at March 31, 2005. The Supreme Court of Justice of Argentina is also currently considering actions challenging the peso conversion as it was applied to insurance policies and annuity contracts. The outcome of the Supreme Court action is uncertain, but MetLife considers it probable that some modification to the original peso conversion will be required and that the most likely modification will be to require a conversion ratio of 1.4 Argentinian pesos to one U.S. dollar, which is the conversion ratio applied to bank deposits. MetLife has estimated the fair value of the additional policy liability required for Citigroup L&A's insurance companies would be approximately $70 million; accordingly, in accordance with SFAS 141, MetLife has recorded an adjustment to record the fair value of such liability. The maximum exposure for these companies if the Supreme Court were to overturn entirely the peso conversion is approximately 13 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) $190 million. MetLife considers the possibility that the Supreme Court will entirely overturn the peso conversion as applied to insurance policies to be remote because the Supreme Court has previously upheld the peso conversion as applied to bank deposits at a conversion ratio of 1.4 Argentinian pesos to one U.S. dollar. (iii) A pro forma purchase adjustment of $50 million at March 31, 2005 has been recorded related to tax contingencies generated upon pesification and the conversion of Argentinian national debt obligations from US dollars to pesos at a conversion rate of 1.4 Argentinian peso to one U.S. dollar adjusted by CER (inflation index). Based on statements from the Argentinian Undersecretary of Public Revenues Ministry of Economy, MetLife believes a tax liability exists on the conversion premium and the CER; accordingly, a liability has been established for this potential tax contingency. A receivable of $25 million from Citigroup has also been established as Citigroup has indemnified MetLife for 50% of such tax contingencies. MERGER RELATED COSTS MetLife's preliminary integration plan includes merger related costs of approximately $196 million, $127 million net of income taxes. Such costs are not included in the purchase price allocation but are period costs which will be charged to the statement of income as incurred over a two year period subsequent to the closing of the acquisition. As these costs are not a part of the normal operations of MetLife, they have not been reflected in the accompanying unaudited pro forma interim condensed consolidated statement of income. These costs include expenses related to the redeployment of MetLife staff, retention bonuses for Citigroup L&A employees, MetLife employee-related restructuring and integration expenses, system migration, product integration and other infrastructure costs. As integration plans are finalized and implemented, such costs will be more precisely quantified. Actual costs may vary materially from these preliminary estimates. 4. EARNINGS PER COMMON SHARE Pro forma earnings per common share for the three months ended March 31, 2005 has been calculated based on the estimated weighted average number of common shares on a pro forma basis, as described below. (a) The historical weighted average number of common shares of MetLife was 734.0 million and 739.6 million, basic and diluted, respectively, for the three months ended March 31, 2005. (b) The pro forma weighted average number of common shares, after giving effect to the acquisition, is 757.0 million and 762.6 million, basic and diluted, respectively, for the three months ended March 31, 2005. The pro forma weighted average number of common shares reflects the issuance of 23.0 million MetLife common shares to Citigroup in the acquisition. For purposes of calculating the number of shares to be issued to Citigroup, the price of the MetLife common shares to be issued is assumed to be $43.53 per common share, which represents the weighted average closing price of MetLife's common shares on the New York Stock Exchange for the ten-day period ending May 26, 2005. (c) Estimated quarterly dividends of $30 million on the perpetual preferred stock to be issued in connection with the acquisition have been deducted from income available to common stockholders for purposes of the pro forma earnings per share calculation. See Note 2 for discussion of the dividend rate used in preparing the pro forma earnings per share. (d) As discussed in Note 2, the value of shares to be issued to Citigroup by MetLife under the Agreement may range up to $3 billion. This unaudited pro forma interim condensed consolidated financial information assumes that $1 billion of common shares will be issued. The impact of issuing an additional $2 billion of common shares, for a total of $3 billion, to Citigroup would increase the basic and diluted weighted average common shares by 45.9 million shares and reduce both the basic 14 METLIFE, INC. NOTES TO THE UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED) and diluted pro forma earnings per share amounts by $0.06, to $1.25 and $1.24, respectively. The increase in the number of common shares issued by $2 billion reduces the amount of the mandatorily convertible equity units by $2 billion which results in a decrease in interest expense of $20 million, $13 million after income taxes. Debt issuance costs on the mandatorily convertible equity units would decline by $55 million, $36 million after income taxes. The quarterly amortization of debt issuance costs and amortization of the accretion on accrued contractual payments related to the forward share contract component of the mandatorily convertible equity units would also decline by $5 million, $3 million after income taxes, and $1 million, $1 million after income taxes, respectively. 15 EX-99.2 3 y09380exv99w2.txt UNAUDITED CONDENSED COMBINED BALANCE SHEET OF CITIGROUP LIFE INSURANCE AND ANNUITIES EXHIBIT 99.2 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2005 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED (UNAUDITED) INDEX TO FINANCIAL STATEMENTS
PAGE ---- Condensed Combined Financial Statements: Condensed Combined Statement of Income for the three months ended March 31, 2005 (unaudited)................ 3 Condensed Combined Balance Sheet -- March 31, 2005 (unaudited)............................................ 4 Condensed Combined Statement of Changes in Shareholder's Equity for the three months ended March 31, 2005 (unaudited)............................................ 5 Condensed Combined Statement of Cash Flows for the three months ended March 31, 2005 (unaudited)................ 6 Notes to Condensed Combined Financial Statements (unaudited)............................................ 7
2 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED CONDENSED COMBINED STATEMENT OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 ------------- ($ IN MILLIONS) REVENUES Premiums.................................................... $ 267 Net investment income....................................... 759 Realized investment gains................................... 54 Fee income.................................................. 232 Other revenues.............................................. 50 ------ Total Revenues............................................ 1,362 ------ BENEFITS AND EXPENSES Current and future insurance benefits....................... 320 Interest credited to contractholders........................ 371 Amortization of deferred acquisition costs.................. 108 General and administrative expenses......................... 166 ------ Total Benefits and Expenses............................... 965 ------ INCOME FROM OPERATIONS BEFORE FEDERAL AND FOREIGN INCOME TAXES..................................................... 397 FEDERAL AND FOREIGN INCOME TAXES Current................................................... 11 Deferred.................................................. 113 ------ Total Federal and Foreign Income Taxes.................... 124 ------ NET INCOME.................................................. $ 273 ======
See Notes to Condensed Combined Financial Statements 3 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 2005 --------------- ($ IN MILLIONS) ASSETS Fixed maturities, available for sale at fair value (including $2,856 subject to securities lending agreements)............................................... $44,508 Equity securities, at fair value............................ 391 Mortgage loans.............................................. 2,349 Policy loans................................................ 894 Short-term securities....................................... 3,364 Trading securities, at fair value........................... 1,081 Other invested assets....................................... 1,972 ------- Total Investments......................................... 54,559 ------- Cash........................................................ 648 Investments income accrued.................................. 560 Premium balances receivable................................. 161 Reinsurance recoverable..................................... 3,985 Deferred acquisition costs.................................. 3,035 Separate and variable accounts.............................. 31,052 Other assets................................................ 1,933 ------- Total Assets.............................................. 95,933 ------- LIABILITIES Contractholder funds........................................ 35,648 Future policy benefits and claims........................... 14,267 Separate and variable accounts.............................. 31,052 Deferred federal and foreign income taxes................... 696 Trading securities sold not yet purchased, at fair value.... 369 Other liabilities........................................... 5,230 ------- Total Liabilities......................................... 87,262 ------- Shareholder's Equity Common stock................................................ 131 Additional paid-in capital.................................. 3,138 Retained earnings........................................... 4,238 Accumulated other changes in equity from nonowner sources... 1,164 ------- Total Shareholder's Equity................................ 8,671 ------- Total Liabilities and Shareholder's Equity................ $95,933 =======
See Notes to Condensed Combined Financial Statements 4 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED CONDENSED COMBINED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 --------------- ($ IN MILLIONS) COMMON STOCK Balance January 1,.......................................... $ 131 Changes in common stock..................................... -- ------ Balance March 31,........................................... 131 ====== ADDITIONAL PAID IN CAPITAL Balance January 1,.......................................... 3,141 Stock options tax expense................................... (3) ------ Balance March 31,........................................... 3,138 ====== RETAINED EARNINGS Balance January 1,.......................................... 4,030 Net income.................................................. 273 Dividends................................................... (87) Citigroup MIS............................................... 17 Other....................................................... 5 ------ Balance March 31,........................................... 4,238 ====== ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES Balance January 1,.......................................... 1,645 Unrealized loss, net of tax................................. (521) Foreign currency translation, net of tax.................... (23) Derivative instrument hedging activity gains, net of tax.... 63 ------ Balance March 31,........................................... 1,164 ====== SUMMARY OF CHANGES IN EQUITY FROM NONOWNER SOURCES Net income.................................................. 273 Other changes in equity from nonowner sources............... (476) ------ Total changes in equity from nonowner sources............... (203) ====== TOTAL SHAREHOLDER'S EQUITY Changes in total shareholder's equity....................... (276) Balance January 1,.......................................... 8,947 ------ Balance March 31,........................................... $8,671 ======
See Notes to Condensed Combined Financial Statements 5 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 --------------- ($ IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES Net income................................................ $ 273 Adjustments to reconcile net income to net cash provided by operating activities Net realized (gains)...................................... (54) Deferred federal and foreign income taxes................. 113 Amortization of deferred acquisition costs................ 108 Additions to deferred acquisition costs................... (225) Investment income accrued................................. (54) Premium balances receivable............................... 12 Insurance reserves........................................ 36 Change in trading account assets.......................... 437 Change in trading account liabilities..................... (102) Citigroup MIS............................................. 17 Other..................................................... (40) ------- Net Cash Provided by Operating Activities............ 521 ------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investments Fixed maturities....................................... 1,266 Mortgage loans......................................... 147 Proceeds from sales of investments Fixed maturities....................................... 2,260 Equity securities...................................... 77 Mortgage loans......................................... 10 Real estate held for sale.............................. 10 Purchases of investments Fixed maturities....................................... (3,373) Equity securities...................................... (59) Mortgage loans......................................... (262) Policy loans, net......................................... 190 Short-term securities (purchases), net.................... (48) Other investments sales, net.............................. (13) Securities transactions in course of settlement, net...... (80) ------- Net Cash Provided by Investing Activities............ 125 ------- CASH FLOWS FROM FINANCING ACTIVITIES Contractholder fund deposits.............................. 1,776 Contractholder fund maturities and withdrawals............ (2,171) Dividends to parent company............................... (87) Other..................................................... (17) ------- Net Cash Used for Financing Activities............... (499) ------- Net increase in cash........................................ 147 Cash at beginning of period................................. 501 ------- Cash at end of period....................................... $ 648 ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid......................................... $ 12 =======
See Notes to Condensed Combined Financial Statements 6 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION -- CONDENSED COMBINED FINANCIAL STATEMENTS The accompanying condensed combined financial statements of Citigroup Life Insurance and Annuities Assets to be Acquired and Liabilities to be Assumed (the Transferred Businesses, or TB) represent the Citigroup operations to be sold pursuant to an Acquisition Agreement (the Agreement) entered into on January 31, 2005 by Citigroup Inc. (Citigroup) and MetLife, Inc. (MetLife). Under the terms of the Agreement, Citigroup agreed to sell certain of its domestic and international insurance operations to MetLife for $11.5 billion in consideration, subject to certain closing adjustments and financing arrangements. The transaction is subject to Citigroup's execution of specific transactions to exclude certain assets and liabilities prior to the close. The following summarizes the domestic and international businesses included in the sale. The condensed combined financial statements have been prepared as if the TB had been standalone operations, though they are not necessarily representative of results had the TB operated as standalone operations. The financial results reflect allocations of corporate expenses from Citigroup, which may be different from comparable expenses that would have been incurred had the TB operated as a standalone company. DOMESTIC In accordance with the Agreement, Citigroup will sell the Hartford, Connecticut-based Travelers Life & Annuity insurance operations (the Domestic Transferred Businesses, or DTB). These operations include retail annuities, individual life insurance, corporate owned life insurance (COLI) and institutional annuity products. In addition, the sale also includes certain individual life and retail annuity business in runoff status since 2003. The following table summarizes the legal entities where the DTB reside, and the associated states of domicile for the insurance entities. These DTB legal entities, excluding certain assets and liabilities in accordance with the Agreement, will be transferred to MetLife.
STATE OF DOMICILE LEGAL ENTITY NAME ----------------- ----------------- Connecticut The Travelers Insurance Company (TIC) Connecticut The Travelers Life and Annuity Company (TLAC) Arizona Citicorp Life Insurance Company (CLIC) New York First Citicorp Life Insurance Company (FCLIC) Bermuda Citicorp International Life Insurance Company, Ltd. of Hamilton Bermuda Florida Citicorp International Life Insurance Company, Ltd. (U.S. Branch) of Hamilton Bermuda (CILIC) South Carolina The Travelers Life and Annuity Reinsurance Company (TLARC) N/A Trumbull Street Investments LLC (TSI)
Also included in the sale are two active broker-dealers, Tower Square Securities, Inc. (Tower Square) and Travelers Distribution LLC (TDLLC), wholly owned subsidiaries of TIC. Tower Square is an introducing broker-dealer registered under the Securities Exchange Act of 1934 and a member of the National Associate of Securities Dealers (NASD). Tower Square's principal activity is to facilitate the sale of variable annuity, variable universal life and other investment products and advisory services through independent registered representatives. TDLLC, a Delaware limited liability company, is a registered limited business broker-dealer under the Securities Exchange Act of 1934 and a member of NASD. TDLLC operates as the principal underwriter and distributor of the DTB' variable annuities and variable life insurance contracts. TIC's ownership of Tribeca Citigroup Investments Ltd. (Tribeca) is included in the sale. 7 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) INTERNATIONAL In accordance with the Agreement, Citigroup will also sell certain portions of the International Insurance Manufacturing (IIM) operations (the International Transferred Businesses, or ITB). The ITB manufacture insurance products in eight countries with six wholly owned subsidiaries in Australia, Brazil, Argentina, the UK, Belgium and Poland and two joint ventures in Japan and Hong Kong. The following table summarizes the legal entities, and associated countries of operation. These ITB legal entities, excluding certain assets and liabilities in accordance with the Agreement, will be transferred to MetLife.
COUNTRY OF OPERATION MANUFACTURING OPERATION LEGAL NAME - -------------------- ---------------------------------- Australia...................... Citicorp General Insurance Limited & Citicorp Life Insurance Limited Argentina...................... Compania Previsional Citi S.A., Siembra Administradora de Fondos de Jubilaciones y Pensiones S.A. (the Siembra Group or AFJP), Siembra Seguros de Retiro S.A., Siembra Seguros de Vida S.A., Best Market S.A. Brazil......................... CitiInsurance do Brasil Vida e Previdencia S.A. Poland......................... CitiInsurance Polska Towarzystwo Ubezpieczen na Zycie S.A. U.K............................ CitiInsurance General Insurance Company Limited, CitiInsurance Life Assurance Company Limited & CitiInsurance Administration Services Limited Belgium........................ CitiLife S.A./N.V. Japan.......................... Mitsui Sumitomo CitiInsurance Life Insurance Co., Ltd. (joint venture) Citigroup Direct Marketing Japan Co., Ltd. Hong Kong...................... Citi Fubon Life Insurance Company Hong Kong Limited (joint venture) China.......................... CitiInsurance Life Insurance Company, Ltd. (in formation) Bermuda........................ CitiInsurance Reinsurance (Bermuda) Ltd. South Korea.................... CDMK, Inc. USA............................ CitiInsurance International Holdings Inc.
The Agreement effectively carves out Citigroup's Life Insurance and Annuity Business included in its Global Investment Management segment. As noted in the Agreement, the sale contemplates specific restructuring transactions that will occur to the legal entities where the TB are contained. The following is a summary of those assets, liabilities and related earnings which are not considered part of the TB, and accordingly have been excluded from the accompanying condensed combined financial statements: (1) All TIC's membership in Keeper Holdings LLC, which holds an interest in CitiStreet; (2) All TIC's shares of Citigroup Series YYY and YY preferred stock, and all dividends with respect thereto; (3) All TIC's shares of American Financial Life Insurance Company stock, and all earnings with respect thereto; (4) All TIC's shares of Primerica Life Insurance Company stock, and all earnings with respect thereto; 8 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) (5) All CLIC's shares of Citicorp Assurance Company stock, and all earnings with respect thereto; (6) Citilife S.A./N.V's .16% equity interest in Europa Financia Limited; (7) All TIC's obligations in the amount of $74 million and the related assets (including deferred tax assets) in the amount of $74 million associated with the Connecticut River Plaza lease; (8) CLIC's $542 million dividend of fixed maturities; (9) Citilife S.A./N.V. (or from one or more subsidiaries of Associates Financial Corporation Limited, and one or more subsidiaries of Citicorp Limited) $200 million dividend of short term investments in aggregate; (10) All owned intellectual property and all trademarks used in connection with products offered only by or through the TB, its Parent or affiliates. This includes, but is not limited to, the "umbrella" trademark and umbrella design trademark, and all trademarks which include the terms "citi," "Citi," the arc design and the blue wave design; (11) All TIC's net obligations in the amount of $452 million related to non-qualified employee benefit plans (including retiree welfare, pension, long-term disability, workers compensation and deferred compensation obligations) and associated assets consisting of $294 million in invested assets and other assets and a deferred tax asset of $158 million, and; (12) TIC's rights in respect to the future earnings or adverse development related to long-term care (LTC) accounts. Certain of the aforementioned restructuring transactions require prior approval or notice to the respective states of domicile. The State of Connecticut Insurance Department has approved the dividend of all TIC's ownership interests and obligations as included in (1) - (4), (7) and (10) - (12) above. The State of Arizona Insurance Department has approved the interests and dividend related to CLIC as noted in (5) and (8) above. The TB anticipate these transactions will be executed immediately preceding the close. The related approvals for the transactions related to Citilife S.A./N.V. as noted in (6) and (9), are currently in process. The Agreement also provides for an indemnification from Citigroup to MetLife for specified tax liabilities incurred by a TB legal entity prior to the closing date. As referenced in the Agreement, the TB legal entities maintain tax reserves for potential audit liabilities for Federal and state income taxes and other taxes of approximately $80 million with respect to pre-closing date tax periods. These liabilities remain the obligation of the TB parent under either the indemnification agreement or under the Federal consolidated income tax return rules rather than of the TB legal entities. Accordingly, these liabilities are transferred to the TB parent and are not included in the accompanying condensed combined financial statements. In accordance with the Agreement, the ITB intercompany debt with Citigroup in the amount of $213 million, and the related assets associated with this liability, also have been excluded from the accompanying condensed combined financial statements. Significant intercompany transactions between TB have been eliminated. The condensed combined financial statements and accompanying footnotes are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and are unaudited. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and benefits and expenses during the reporting period. Actual results could differ from those estimates. 9 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) In the opinion of management, the interim condensed combined financial statements reflect all normal recurring adjustments necessary for a fair presentation of results for the period reported. The accompanying condensed combined financial statements should be read in conjunction with the combined financial statements and related notes for the year ended December 31, 2004. Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but is not required for interim reporting purposes, has been condensed or omitted. Interim results are not necessarily indicative of full year performance. 2. INCOME TAXES DOMESTIC The tax provision for the transferred subsidiaries is reflected in accordance with the actual tax return liabilities (or benefits) incurred by each subsidiary. For the taxable year ending December 31, 2004, TIC, TLAC, and TLARC will file federal tax returns as part of the Citigroup consolidated federal income tax return. Neither TIC nor TLAC received any material tax benefit or additional tax cost from being part of the Citigroup consolidated return. TLARC had a net operating loss in 2004 for which it will be paid under the terms of the Citigroup tax sharing agreement. In the event that TLARC did not file its federal income tax return as part of the Citigroup consolidated tax return, these losses would have not have been used to reduce current taxable income of the Citigroup consolidated group. There is no material federal income tax difference for any subsidiaries of TIC that results from TIC and TLAC not being part of the Citigroup consolidated federal tax return. CLIC and FCLIC file a separate consolidated federal tax return and do not file as part of the Citigroup consolidated tax return. INTERNATIONAL No foreign subsidiary files as part of any U.S. consolidated federal income tax return. U.S. federal income taxes on foreign operations consist of current U.S. tax paid on subpart F income plus deferred taxes on non-subpart F income, net of any Accounting Practices Board Opinion No. 23, "Accounting for Income Taxes -- Special Areas" (APB 23) benefit, for earnings that will not be distributed to the U.S. Both current and deferred federal income taxes are net of any U.S. foreign tax credits. The entire APB 23 benefit relates to Australian operations. Citigroup adjusts, through a "tax top off" process, local taxes booked in local legal vehicles to reflect U.S. tax rates. The appropriate U.S. tax rates are determined by the Citigroup corporate tax division and consider such factors as availability and utilization of foreign tax credits. The condensed combined financial statements as they have been presented include the tax top offs in the income statement, but do not impact the balance sheet. EFFECTIVE TAX RATE ($ in millions)
FOR THE YEAR ENDED MARCH 31, 2005 - ---------------------------- ---- Income before federal and foreign income taxes.............. 397 Statutory tax rate.......................................... 35% ---- Expected federal and foreign income taxes................... 139
10 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 2005 - ---------------------------- ---- Tax effect of: Non-taxable investment income............................... (5) International............................................... (7) Other....................................................... (3) Federal and foreign income taxes............................ 124 ---- Effective tax rate.......................................... 31% ---- COMPOSITION OF FEDERAL AND FOREIGN INCOME TAXES Current: United States............................................... $ 8 Foreign..................................................... 3 ---- Total....................................................... 11 ---- Deferred: United States............................................... 112 Foreign..................................................... 1 ---- Total....................................................... 113 ---- Federal and foreign income taxes............................ $124 ====
Additional tax benefits (expense) attributable to employee stock plans allocated directly to shareholder's equity for the three months ended March 31, 2005, was $(3) million. The net deferred tax liability at March 31, 2005 was comprised of the tax effects of temporary differences related to the following assets and liabilities:
($ IN MILLIONS) 2005 - --------------- ------- Deferred Tax Assets: Benefit, reinsurance and other reserves..................... $ 442 Operating lease reserves.................................... 7 Employee benefits........................................... 9 Other....................................................... 125 ------- Total....................................................... 583 ------- Deferred Tax Liabilities: Deferred acquisition costs and value of insurance in force..................................................... (819) Investments, net............................................ (400) Other....................................................... (60) ------- Total....................................................... (1,279) ------- Net Deferred Tax Liability.................................. $ (696) =======
The TB, collectively, had a $4 million payable from Citigroup at March 31, 2005 related to the Tax Sharing Agreement. 11 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) At December 31, 2004 FCLIC had a capital loss carryforward of $2 million. No other TB had any ordinary or capital loss carryforwards. Under the 1984 Tax Act, life insurance companies were subject to tax on any subtractions made from the Policyholders' Surplus Account (PSA). The PSA arose under pre-1984 law, and consists generally of that portion of the gain from operations that had not been subject to tax, plus certain special deductions. Under the 2004 Act, distributions may be made from the PSA without triggering any tax. The balance in the PSA as of March 31, 2005, taking into account the restructuring transactions reflected in the balance sheet, is zero. 3. SHAREHOLDER'S EQUITY SHAREHOLDER'S EQUITY AND DIVIDEND AVAILABILITY Domestic DTB combined statutory capital and surplus was $3.293 billion at December 31, 2004. The DTB are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of insurance regulatory authorities. The DTB are domiciled in the following states: Arizona, Connecticut, Florida, New York, and South Carolina. Depending upon both the timing and the amounts of proposed dividends, procedures for their payment vary from state to state. The State of Connecticut Insurance Department requires prior approval for any dividends for a period of two years following a change in control. Accordingly, any dividends from TIC or TLAC, during that period, would require prior approval from the State of Connecticut Insurance Department. The States of Arizona, New York, and South Carolina do not have specific statutes addressing dividend capability following a change in control. The amount of dividends which may be paid without prior approval during 2005 for CLIC, FCLIC and TLARC is $26.7 million, $5.4 million and $70.0 million, respectively. In determining whether a dividend is extraordinary, the dividend limitation threshold is applied to the cumulative dividends paid during the preceding twelve months. Accordingly, any dividends paid during 2005 related to Citigroup's execution of specific transactions as discussed in Note 1, will be included in determining whether a dividend is considered extraordinary. During the three months ended March 31, 2005, the TB paid dividends in the amount of $87.3 million. This dividend was paid by TIC on March 30, 2005. As contemplated in the Agreement, and as described in Note 1, certain transactions and dividends (i.e. Primerica Life Insurance Company dividend, YY preferred shares and YYY preferred shares) must be paid through TIC, but are not included within the TB. The State of Connecticut Insurance Department considers all dividends from a legal entity in determining the aggregate level of dividend which may be paid with out prior approval from the State of Connecticut Insurance Department. The total dividends paid by TIC during the three months ended March 31, 2005 were $450.0 million, and were comprised of the following: (1) On January 3, 2005, TIC paid an extraordinary dividend in the amount of $302.5 million. This amount was comprised of $152.5 million, which was excluded from the December 31, 2004 combined financial statements, plus $150.0 million in YYY preferred shares, also excluded from the December 31, 2004 combined financial statements; and (2) On March 30, 2005, TIC paid an ordinary dividend in the amount of $147.5 million. This amount was comprised of $87.3 million from the TB and "pass-through" dividends of $50.0 million and $10.2 million from the Primerica Life Insurance Company and Citigroup YY preferred shares, respectively. 12 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) CILIC maintains trusteed surplus in accordance with Florida statutes. Any dividend requires prior approval from the State of Florida Insurance Department. International Each ITB is subject to various local-country restrictions that limit the amount of dividends available to their parent companies. Such limitations include regulatory restrictions on minimum required capital, local solvency margin calculations as well as local market practices. Restrictions are primarily formula driven in certain countries and negotiated with regulators in others. Procedures for remitting dividends also vary by country, ranging from the requirement to obtain formal regulatory approval to informal notification to regulators. 4. COMMITMENTS AND CONTINGENCIES DOMESTIC Litigation In August 1999, an amended putative class action complaint captioned Lisa Macomber, et al. vs. Travelers Property Casualty Corporation, et al. was filed in New Britain, Connecticut Superior Court against TIC, its parent corporation, certain of TIC's affiliates (collectively TLA), and TIC's former affiliate, Travelers Property Casualty Corporation. The amended complaint alleges Travelers Property Casualty Corporation purchased structured settlement annuities from TIC and spent less on the purchase of those structured settlement annuities than agreed with claimants; and that commissions paid to brokers of structured settlement annuities, including an affiliate of TIC, were paid, in part, to Travelers Property Casualty Corporation. The amended complaint was dismissed and following an appeal by the plaintiff in September 2002 the Connecticut Supreme Court reversed the dismissal of several of the plaintiff's claims. On May 26, 2004, the Connecticut Superior Court certified a nation wide class action involving the following claims against TLA: violation of the Connecticut Unfair Trade Practice Statute, unjust enrichment and civil conspiracy. On June 15, 2004, the Defendants, including TLA, appealed the Connecticut Superior Court's May 26, 2004 class certification order. In 2003 and 2004, several issues in the mutual fund and variable insurance product industries have come under the scrutiny of federal and state regulators. Like many other companies in our industry, TIC and certain of the DTB' legal entities have received a request for information from the Securities and Exchange Commission (SEC) and a subpoena from the New York Attorney General regarding market timing and late trading. During 2004 the SEC requested additional information about TIC's variable product operations on market timing, late trading and revenue sharing, and the SEC, the National Association of Securities Dealers and the New York Insurance Department have made inquiries into these issues and other matters associated with the sale and distribution of insurance products. In addition, like many insurance companies and agencies, in 2004 and 2005 TIC and certain of the DTB' legal entities received inquiries from certain state Departments of Insurance regarding producer compensation and bidding practices. TIC and certain of the DTB' legal entities are cooperating fully with all of these requests and is not able to predict their outcomes. In addition, TIC and certain of the DTB' legal entities are defendants or co-defendants in various other litigation matters in the normal course of business. These include civil actions, arbitration proceedings and other matters arising in the normal course of business out of activities as an insurance company, a broker and dealer in securities or otherwise. 13 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) In the opinion of DTB' management, the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the TB' consolidated financial condition or liquidity, but, if involving monetary liability, may be material to the TB' operating results for any particular period. Other TIC is a member of the Federal Home Loan Bank of Boston (the Bank), and in this capacity has entered into a funding agreement (the funding agreement) with the Bank where a blanket-lien has been granted to collateralize the Bank's deposits. TIC maintains control of these assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreement further states that upon any event of default, the Bank's recovery is limited to the amount of the member's outstanding funding agreement. The amount of TIC's liability for funding agreements with the Bank as of March 31, 2005 is $1.1 billion, included in contractholder funds. The TB hold $60.3 million of common stock of the Bank, included in Investments. INTERNATIONAL Japan joint venture Pursuant to the joint venture agreement governing the ITB' Japan joint venture interest, upon a change of control of CitiInsurance International Holdings Inc. (CIHI), Mitsui Sumitomo Insurance Co., Ltd. (MSI), the ITB' partner in the Japan joint venture, has the right to purchase all of the joint venture shares owned by CIHI at a price per share equal to the fair market value thereof as determined by an independent financial advisor. Such right may be exercised not later than 30 days after notice of the change of control is received by MSI. Siembra Group As the economic situation, as well as legal and regulatory issues, in Argentina remain fluid, the Siembra Group is watching the potential impact that government actions may have on our pension and insurance businesses, including the potential for pension reform, re -dollarization of pension annuities, impact of debt restructurings, and the liquidity and capital needs of the pension and insurance subsidiaries. Additional costs to the Siembra Group will depend on future actions by the Argentine government and the Siembra Group. Additional losses may be incurred. On January 14, 2005, AFJP tendered defaulted government debt as part of a general Argentine debt restructuring in expectation of receiving new securities. As of December 31, 2004, securities tendered had a fair value of 33 million Argentine pesos (approximately $11 million). These securities are expected to have a mandatory trading restriction of one year after receipt and are, therefore, not expected to have a publicly quoted fair market value until such time that they can be traded. Injunctions (Amparos) The Argentina businesses have received court injunctions relating to customers' claims that they are owed U.S. dollars despite the government mandated conversion into pesos of all U.S. dollar denominated contracts at specified rates. If a customer is successful, an Argentine judge may issue an order of Amparos allowing the customer to withdraw the original U.S. dollar denominated balance at the current free-floating exchange rate, resulting in a loss to the Siembra Group. The Siembra Group accounts for Amparos as litigation costs. Because the Siembra Group cannot monitor the number or related amounts of Amparos in the 14 CITIGROUP LIFE INSURANCE AND ANNUITIES ASSETS TO BE ACQUIRED AND LIABILITIES TO BE ASSUMED NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) court system, combined with the uncertainty related to the legal issues surrounding their enforcement, the total exposure is not reasonably estimable. Therefore, the Siembra Group accounts for Amparos losses as specific court orders to pay are received. In the opinion of ITB' management, the ultimate resolution of these legal and regulatory proceedings would not be likely to have a material adverse effect on the combined financial condition or liquidity, but, if involving monetary liability, may be material to the TB' operating results for any particular period. 15 EX-99.3 4 y09380exv99w3.txt PRESS RELEASE . . . EXHIBIT 99.3 Public Relations MetLife, Inc. For Immediate Release One MetLife Plaza 27-01 Queens Plaza North [MetLife Logo] Long Island City, NY 11101
Contacts: For Media: John Calagna (212) 578-6252 For Investors: Tracey Dedrick (212) 578-5140
FINITE RISK INSURANCE INFORMATION REQUESTS NEW YORK, May 27, 2005 -- MetLife, Inc. (NYSE: MET) announced that it has received a subpoena from the Connecticut Attorney General requesting information regarding its participation in any finite reinsurance transactions. MetLife has also received information requests relating to finite insurance or reinsurance from other regulatory and governmental authorities. MetLife believes it has appropriately accounted for its transactions of this type and intends to cooperate fully with these information requests. The Company believes that a number of other industry participants have received similar requests from various regulatory and governmental authorities. It is reasonably possible that MetLife or its subsidiaries may receive additional requests. MetLife and any such subsidiaries will fully cooperate with all such requests. MetLife, Inc., through its subsidiaries and affiliates, is a leading provider of insurance and other financial services to individual and institutional customers. The MetLife companies serve individuals in approximately 13 million households in the U.S. and provide benefits to 37 million employees and family members through their plan sponsors. Outside the U.S., the MetLife companies serve approximately 9 million customers through direct insurance operations in Argentina, Brazil, Chile, China, Hong Kong, India, Indonesia, Mexico, South Korea, Taiwan and Uruguay. For more information about MetLife, please visit the company's Web site at www.metlife.com. # # # -----END PRIVACY-ENHANCED MESSAGE-----