EXHIBIT 99.1
UNAUDITED PRO FORMA 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 historical combined financial statements as if
completed as of December 31, 2004. The Citigroup L&A 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 condensed consolidated financial
information consolidates the historical consolidated statement of income and
consolidated balance sheet of MetLife and the historical combined statement of
income and combined balance sheet of Citigroup L&A. Those historical financial
statements were prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP). The unaudited pro forma
condensed consolidated financial information has been prepared using the
assumptions described in the notes thereto.
The unaudited pro forma condensed consolidated financial information below
should be read in conjunction with the notes thereto and the historical 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 historical consolidated
financial information of MetLife included in its Annual Report on Form 10-K for
the year ended December 31, 2004. This unaudited pro forma 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 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 condensed consolidated financial information.
METLIFE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
<Table>
<Caption>
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...................................... $176,763 $45,433 $ (160) $(1,404) 3(a), 3(b) $220,632
Equity securities, at fair value............. 2,188 346 -- -- 2,534
Mortgage and other loans..................... 32,406 2,246 73 -- 3(c) 34,725
Policy loans................................. 8,899 1,084 5 -- 3(d) 9,988
Real estate and real estate joint ventures
held-for-investment........................ 3,981 258 145 (478) 3(e), 3(f) 3,906
Real estate held-for-sale.................... 252 37 14 -- 3(g) 303
Other limited partnership interests.......... 2,907 1,422 -- -- 4,329
Short-term investments....................... 2,663 3,301 -- -- 5,964
Trading securities........................... -- 1,504 -- -- 1,504
Other invested assets........................ 4,926 318 245 -- 3(h) 5,489
-------- ------- -------- ------- --------
TOTAL INVESTMENTS.......................... 234,985 55,949 322 (1,882) 289,374
Cash and cash equivalents...................... 4,051 501 (10,623) 10,623 3(i) 4,552
Common stock issuance and distribution......... -- -- (1,000) 1,000 3(i) --
Accrued investment income...................... 2,338 547 -- -- 2,885
Premiums and other receivables................. 6,696 4,183 1,064 -- 3(j) 11,943
Deferred policy acquisition costs.............. 12,752 2,926 (2,926) -- 3(l) 12,752
Value of business acquired..................... 1,584 91 2,852 -- 3(m), 3(n) 4,527
Goodwill....................................... 633 225 4,631 -- 3(o), 3(p) 5,489
Other intangible assets........................ -- -- 179 -- 3(q) 179
Assets of subsidiaries held-for-sale........... 379 -- -- -- 379
Other assets................................... 6,621 1,728 (11) 74 3(r), 8,412
3(ff), 3(s)
Separate account assets........................ 86,769 31,183 -- -- 117,952
-------- ------- -------- ------- --------
TOTAL ASSETS............................... $356,808 $97,333 $ (5,512) $ 9,815 $458,444
======== ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Future policy benefits....................... $100,159 $12,756 $ 3,110 $ -- 3(j), 3(ff) $116,025
Policyholder account balances................ 83,570 36,061 2,634 -- 3(k) 122,265
Other policyholder funds..................... 6,984 1,471 -- -- 8,455
Policyholder dividends payable............... 1,071 -- -- -- 1,071
Policyholder dividend obligation............. 2,243 -- -- -- 2,243
Short-term debt.............................. 1,445 -- -- 1,000 3(t) 2,445
Long-term debt............................... 7,412 5 (154) 4,700 3(a), 3(t) 11,963
Shares subject to mandatory redemption....... 278 -- -- -- 278
Liabilities of subsidiaries held-for-sale.... 240 -- -- -- 240
Current income taxes payable................. 421 (15) 50 460 3(ff), 3(f) 916
Deferred income taxes payable................ 2,473 850 (1,976) (51) 3(u), 3(f) 1,296
Payables under securities loaned
transactions............................... 28,678 2,040 -- -- 30,718
Trading securities sold not yet purchased.... -- 473 -- -- 473
Other liabilities............................ 12,241 3,562 (229) 111 3(v), 3(w) 15,685
Separate account liabilities................. 86,769 31,183 -- -- 117,952
-------- ------- -------- ------- --------
TOTAL LIABILITIES.......................... 333,984 88,386 3,435 6,220 432,025
-------- ------- -------- ------- --------
Stockholders' Equity:
Common stock, par value $0.01 per share;..... 8 -- -- -- 8
Additional paid-in capital................... 15,037 -- 1,000 3(t) 16,037
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................... -- 3,141 (3,141) (111) 3(x), 3(w) (111)
Retained earnings............................ 6,608 4,030 (4,030) 758 3(x), 3(f) 7,366
Treasury stock, at cost;..................... (1,785) -- -- -- (1,785)
Accumulated other comprehensive income....... 2,956 1,645 (1,645) -- 3(x) 2,956
-------- ------- -------- ------- --------
TOTAL STOCKHOLDERS' EQUITY................. 22,824 8,947 (8,947) 3,595 26,419
-------- ------- -------- ------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................... $356,808 $97,333 $ (5,512) $ 9,815 $458,444
======== ======= ======== ======= ========
</Table>
See notes to unaudited pro forma condensed consolidated financial information.
2
METLIFE, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
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........................... $22,316 $1,314 $ -- $ -- $23,630
Universal life and investment-type
product policy fees.............. 2,900 711 34 -- 3(y) 3,645
Net investment income.............. 12,418 2,973 (311) (159) 3(z), 3(aa) 14,921
Other revenues..................... 1,198 161 (83) -- 3(bb) 1,276
Net investment gains............... 182 14 -- -- 196
------- ------ ----- ----- -------
TOTAL REVENUES................... 39,014 5,173 (360) (159) 43,668
------- ------ ----- ----- -------
EXPENSES
Policyholder benefits and claims... 22,662 1,529 (36) -- 3(j) 24,155
Interest credited to policyholder
account balances................. 2,998 1,386 (227) -- 3(k) 4,157
Policyholder dividends............. 1,814 -- -- -- 1,814
Other expenses..................... 7,761 1,014 (131) 279 3(cc), 3(dd) 8,923
------- ------ ----- ----- -------
TOTAL EXPENSES................... 35,235 3,929 (394) 279 39,049
------- ------ ----- ----- -------
Income from continuing operations
before provision for income
taxes............................ 3,779 1,244 34 (438) 4,619
Provision for income taxes......... 1,071 343 83 (153) 3(ee) 1,344
------- ------ ----- ----- -------
INCOME FROM CONTINUING
OPERATIONS....................... $ 2,708 $ 901 $ (49) $(285) $ 3,275
======= ====== ===== ===== =======
EARNINGS PER SHARE
Income from continuing operations
available to common stockholders
Basic............................ $ 3.61 $ 4.08
======= =======
Diluted.......................... $ 3.59 $ 4.05
======= =======
Weighted average number of common
shares outstanding (in millions)
Basic............................ 749.7 773.8
======= =======
Diluted.......................... 754.8 778.9
======= =======
</Table>
See notes to unaudited pro forma condensed consolidated financial information.
3
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
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. The unaudited pro forma condensed consolidated
financial information has been prepared by MetLife's management and is based on
MetLife's historical consolidated financial statements and Citigroup L&A's
historical combined financial statements, which have been prepared by Citigroup.
Certain amounts from Citigroup L&A's 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 condensed
consolidated statement of income.
This unaudited pro forma condensed consolidated financial information is
prepared in conformity with accounting principles generally accepted in the
United States of America (GAAP). The unaudited pro forma condensed consolidated
balance sheet at December 31, 2004 and the unaudited pro forma condensed
consolidated statement of income for the year ended December 31, 2004 have been
prepared using the following information:
(a) Audited historical consolidated financial statements of MetLife as of
and for the year ended December 31, 2004;
(b) Audited historical combined financial statements of Citigroup L&A as of
and for the year ended December 31, 2004; and
(c) Such other supplementary information as considered necessary to reflect
the acquisition in the unaudited pro forma 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 unaudited pro forma condensed consolidated 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 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
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 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 condensed consolidated financial information
include the portion of restructuring and integration costs to be incurred by
MetLife.
The unaudited pro forma 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 condensed consolidated financial information should be read
in conjunction with the historical
4
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
consolidated financial statements of MetLife included in MetLife's Annual Report
on Form 10-K for the year ended December 31, 2004, the historical combined
financial statements of Citigroup L&A 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.
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
historical combined financial statements as if completed as of December 31,
2004. 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 pro forma financial information included herein reflects management's
best estimate of the forms and amounts of financing at the time this pro forma
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 pro forma financial information. The actual financing forms and amounts
of financing will not be determined until shortly before the closing date of the
acquisition. The pro forma financial information presented herein assumes the
following:
(i) MetLife will issue $1 billion, 24.1 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 $41.44 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
11, 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.
(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 condensed consolidated
statement of income reflects the reduction in investment income from
the sale of such real estate and fixed maturity securities. The
unaudited pro forma condensed consolidated statement of income does
not reflect the anticipated gain/(loss) on the sale of such
investments as such 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 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.
5
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
These assumptions are made based on the best information available at
the time the unaudited pro forma 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.
For purposes of presentation in the unaudited pro forma condensed
consolidated financial information, the financing of the acquisition and
allocation of purchase price is assumed to be as follows:
<Table>
<Caption>
EXPECTED
RANGE OF ANNUAL EXPECTED
ANTICIPATED POTENTIAL INTEREST/ ANNUAL
FINANCING FINANCING DIVIDEND INTEREST/
SOURCES: AMOUNT AMOUNTS RATE(4)(5) DIVIDEND(4)(5)
- -------- ------------- -------------- ------------ --------------
(IN MILLIONS) (IN MILLIONS) (%) (IN MILLIONS)
Cash............................. $ 3,049 $2,500 - 3,500 --(1)(2) -- (1)(2)
Debt............................. 3,700 3,000 - 5,000 2.85 - 6.00% $175
Mandatorily convertible equity
units.......................... 2,000 2,000 - 3,000 3.50 - 4.50% 80
Perpetual preferred stock........ 2,000 1,000 - 2,000 4.00 - 6.50% 120
MetLife, Inc. common stock....... 1,000 1,000 - 3,000 --(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................. 8,947
Estimated fair value
adjustments............... (2,180)
-------
Estimated fair value of net
balance sheet assets
acquired.................. 6,767
-------
Goodwill.................... $ 4,856
=======
</Table>
- ---------------
(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 is
being
6
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
sold to facilitate the funding of the acquisition. Net investment income
on such real estate property was $67 million during 2004. The sale of the
real estate property and the elimination of the related net investment
income are reflected as pro forma adjustments in the unaudited pro forma
condensed consolidated balance sheet and unaudited pro forma condensed
consolidated statement of income, respectively. The unaudited pro forma
condensed consolidated statement of income does not reflect the
anticipated gain on the sale of such investment as such gain would be
reported as discontinued operations. See pro forma adjustment 3(f).
(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 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 the related investment income are
reflected as pro forma adjustments in the unaudited pro forma condensed
consolidated balance sheet and unaudited pro forma condensed consolidated
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
condensed consolidated statement of income. See pro forma adjustment
3(b).
(3) -- Common stock dividend rates are set annually and are not reflected in the
unaudited pro forma 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 pro forma 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 three year term of such
contracts.
MetLife's borrowing rates are sensitive to changes in risk-free rates and
credit spreads. An increase in composite interest rates of one-quarter of
a percent on debt issuances would result in an increase in annual interest
expense of $13 million. Preferred dividends would increase by $5 million
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 has signed
a commitment letter with term sheet for a facility to provide up to $7
billion in bridge financing for a period not to exceed 364 days from the
earlier of the seventh day prior to closing or June 24, 2005. The net
cash proceeds of certain of the financing alternatives shown above will
be used to repay or reduce the amount available under the bridge
facility. The bridge facility provides for an interest rate of either (i)
a base rate equal to the higher of the Federal Funds Rate plus 1/2% or
Bank of America's prime rate or (ii) LIBOR plus 25, 30 or 45 basis
points, depending on MetLife's debt rating. 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 condensed consolidated
financial information.
7
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
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 historical 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.
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
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 December 31,
2004 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 condensed
consolidated financial information and such differences may be material.
(a) Elimination of the fair value of $160 million in
available-for-sale fixed maturity securities held by Citigroup
and issued by MetLife and the related historical cost of the debt
securities issued by MetLife of $154 million. The related
interest expense to MetLife and interest income to Citigroup L&A
of $8 million has also been eliminated in the accompanying
unaudited pro forma condensed consolidated statement of income.
(b) Sale by MetLife of available-for-sale fixed maturity securities
with a carrying value of $1,404 million to fund the acquisition
of Citigroup L&A. The unaudited pro forma 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 was computed based upon the
average yield of fixed maturities of 6.55% in 2004 and was $92
million during 2004. 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 $73 million for the difference between
the estimated fair value and carrying value of Citigroup L&A's
investment in mortgage loans. Related amortization of the fair
value adjustment during 2004 was estimated to be $15 million in
the unaudited pro forma condensed consolidated statement of
income.
(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 2004 was estimated to be $1 million in
the unaudited pro forma condensed consolidated statement of
income.
(e) Fair value adjustment of $145 million relates to Citigroup L&A's
investment in real estate joint ventures held-for investment.
Related amortization of the fair value adjustment during 2004 was
estimated at $5 million and is reflected as a reduction in net
investment income in the unaudited pro forma condensed
consolidated statement of income.
(f) A real estate property with a carrying value of $478 million was
sold on May 4, 2005 for $1,720 million, resulting in an
anticipated 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.
8
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
Net investment income on the unaudited pro forma condensed
consolidated statement of income has been reduced by $67 million
to reflect the elimination of the investment income on such
property as if it had then been sold as of the beginning of 2004.
As the anticipated gain would be reported as discontinued
operations, it has not been reflected in the accompanying
unaudited pro forma condensed consolidated statement of income.
The gain has been reflected as an increase in equity in the
accompanying unaudited pro forma condensed consolidated balance
sheet.
(g) Fair value adjustment of $14 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 2004.
(h) Fair value adjustment of $245 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 2004 was estimated at $9 million and is
reflected as a reduction in other revenues in the unaudited pro
forma condensed consolidated statement of income.
(i) The pro forma financing adjustment represents the cash 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) Adjustment of $1,521 million to reinsurance recoverable
represents an increase in reinsurance recoverable for benefits
ceded to reinsurers and was computed using the same assumptions
that were used to determine the purchase accounting adjustment to
the liability for future policy benefits.
Adjustments to the liability for future policy benefits of $3,567
million represents the difference between the Citigroup L&A
carrying value of such liabilities and the purchase accounting
basis of such liabilities using current assumptions. Included
within such adjustment is $215 million related to Citigroup L&A's
Argentinian operations as described in pro forma adjustments
3(ff)(i) and (ii).
Elimination of reinsurance recoverable on the liability for
future policy benefits and the liability for future policy
benefits of $457 million 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.
Amortization of the adjustment to the liability for future policy
benefits resulted in a decrease in policyholder benefits and
claims of $36 million in 2004.
9
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(k) The adjustment to policyholder account balances of $2,634 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 in 2004
decreased by $227 million as a result of the revaluation of
policyholder account balances.
(l) Elimination of Citigroup L&A's historical deferred policy
acquisition costs of $2,926 million, and related 2004
amortization of $394 million.
(m) Elimination of Citigroup L&A's historical VOBA of $91 million and
related 2004 amortization of $10 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 was 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
was 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 December 31, 2004, the
VOBA balance is estimated at $2,943 million. The estimated
amortization for 2004 was $283 million.
The following table provides an estimated amortization of the pro
forma consolidated VOBA from 2005 to 2009:
<Table>
<Caption>
(IN MILLIONS)
2005...................................................... $306
2006...................................................... $301
2007...................................................... $283
2008...................................................... $257
2009...................................................... $231
</Table>
(o) Elimination of Citigroup L&A's historical goodwill of $225
million.
(p) Represents the goodwill of $4,856 million arising from the
transaction. See computation in Note 2.
(q) Represents the recognition of identifiable intangible assets,
comprised of the Citigroup L&A distribution agreement and
customer relationships acquired as a part of the purchase. The
estimated fair value of the distribution agreement and customer
relationships are $166 million and $13 million, respectively, for
a total of $179 million. The identifiable intangibles will be
amortized in relation to the expected economic benefits of the
agreement. Amortization for the first full year of the agreement
is estimated to be $3 million.
(r) Fair value adjustment of $11 million for the difference between
the estimated fair value and carrying value of Citigroup L&A's
other assets and a recoverable from Citigroup of $25 million as
described in pro forma adjustment 3(ff)(iii). The estimated
amortization in 2004 was not material.
10
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(s) Adjustment representing the costs associated with the issuance of
commercial paper, senior debt and mandatorily convertible equity
units of $74 million. During 2004, $20 million of such costs were
assumed to be amortized.
(t) Adjustment to debt represents the issuance of $1,000 million of
commercial paper, $2,700 million 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).
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.
(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 $1,976 million. The
deferred tax asset is net of a valuation allowance of $123
million related to operations in Argentina.
(v) The pro forma adjustment of $229 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 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
adjustment of $4 million has been made to record one year 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) Represents a reclassification of $47 million in surrender fees
from other revenues to universal life and investment-type policy
fees offset by the elimination of $13 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) The pro forma purchase adjustments represent amortization of
premiums and discounts of $282 million on fixed maturity
securities of Citigroup L&A based upon the fair value of these
assets as of December 31, 2004. Realized gains and losses have
not been adjusted and, therefore, are based on their historical
cost basis. Also included in such adjustment is $15 million in
amortization of the increase in fair value of mortgage loans as
described in pro forma adjustment 3(c), $1 million related to the
amortization of the fair value adjustment on policy loans as
described in pro forma adjustment 3(d), $5 million of
amortization of the increase to real estate held-for-investment
as described in pro forma adjustment 3(e), and the elimination of
$8 million of investment income on the MetLife securities held by
Citigroup L&A as described in pro forma adjustment 3(a).
(aa) Represents the elimination of investment income on fixed maturity
securities and real estate sold of $92 million and $67 million,
respectively, as described in pro forma adjustments 3(b) and
3(f), respectively.
11
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(bb) Represents a reclassification of $47 million in surrender fees
from other revenues to universal life and investment-type policy
fees, plus the elimination of $27 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 adjustment 3(v), in purchase accounting,
and the amortization of the fair value of other invested assets
of $9 million as described in pro forma adjustment 3(h).
(cc) Decrease in other expenses relates to purchase adjustments as
follows:
<Table>
<Caption>
(in millions)
1) Elimination of intercompany interest expense............. 3(a) $ (8)
2) Elimination of amortization on historical deferred policy
acquisition costs......................................... 3(l) (394)
3) Elimination of historical amortization of VOBA........... 3(m) (10)
4) Amortization of VOBA..................................... 3(n) 283
5) Amortization of other intangible assets.................. 3(q) 3
6) Amortization of other asset adjustments.................. 3(r) (5)
-----
$(131)
=====
</Table>
(dd) Interest expense on financing of transaction of $255 million is
disclosed in Note 2, amortization of debt issuance costs of $20
million in pro forma adjustment 3(s) and $4 million in accretion
on accrued contractual payments on mandatorily convertible equity
units in pro forma adjustment 3(w) for total interest expense of
$279 million.
(ee) Represents the income tax effect of all pro forma consolidated
statement of income adjustments using a tax rate of 35% adjusted
to eliminate certain tax items which are not relevant to this
current pro forma presentation.
(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 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 $110 million in Citigroup
L&A's managed pension business in Argentina. This increase
reflects additional death and disability claims that have
occurred through December 31, 2004 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
December 31, 2004 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.
12
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(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 historical 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 December 31, 2004.
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 $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 adjustment of $50 million at December 31, 2004
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.
13
METLIFE, INC.
NOTES TO THE UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
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 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 year ended December 31, 2004
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
749.7 million and 754.8 million, basic and diluted, respectively, for
the year ended December 31, 2004.
(b) The pro forma weighted average number of common shares, after giving
effect to the acquisition, is 773.8 million and 778.9 million, basic
and diluted, respectively, for the year ended December 31, 2004. The
pro forma weighted average number of common shares reflects the
issuance of 24.1 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 $41.44 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 11, 2005.
(c) Estimated dividends of $120 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 pro
forma 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 48.3 million
shares and reduce both the basic and diluted pro forma earnings per
share amounts by $0.16, to $3.92 and $3.89, 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 $80 million, $52 million after
income taxes. Debt issuance costs on the mandatorily convertible equity
units would decline by $55 million, $36 million after income taxes. The
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 $18 million, $12 million after income taxes, and $4 million,
$3 million after income taxes, respectively.
14