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
<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....................... $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.
</Table>
2
METLIFE, INC.
UNAUDITED PRO FORMA INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005
<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............................... $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.
</Table>
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:
<Table>
<Caption>
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
=======
</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 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:
<Table>
<Caption>
(IN MILLIONS)
Nine months ended December 31, 2005......................... $233
2006........................................................ $307
2007........................................................ $292
2008........................................................ $268
2009........................................................ $242
</Table>
(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:
<Table>
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)
====
</Table>
(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:
<Table>
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)
====
</Table>
(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