METLIFE INC | 2013 | FY | 3

11. Goodwill
Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate, indicate that there may be justification for conducting an interim test. Step 1 of the goodwill impairment process requires a comparison of the fair value of a reporting unit to its carrying value. In performing the Company’s goodwill impairment tests, the estimated fair values of the reporting units are first determined using a market multiple valuation approach. When further corroboration is required, the Company uses a discounted cash flow valuation approach. For reporting units which are particularly sensitive to market assumptions, the Company may use additional valuation methodologies to estimate the reporting units’ fair values.
The market multiple valuation approach utilizes market multiples of companies with similar businesses and the projected operating earnings of the reporting unit. The discounted cash flow valuation approach requires judgments about revenues, operating earnings projections, capital market assumptions and discount rates. The key inputs, judgments and assumptions necessary in determining estimated fair value of the reporting units include projected operating earnings, current book value, the level of economic capital required to support the mix of business, long-term growth rates, comparative market multiples, the account value of in-force business, projections of new and renewal business, as well as margins on such business, the level of interest rates, credit spreads, equity market levels, and the discount rate that the Company believes is appropriate for the respective reporting unit.
When testing goodwill for impairment, the Company also considers its market capitalization in relation to the aggregate estimated fair value of its reporting units. The Company applies significant judgment when determining the estimated fair value of the Company’s reporting units and when assessing the relationship of market capitalization to the aggregate estimated fair value of its reporting units.
The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of the Company’s reporting units could result in goodwill impairments in future periods which could materially adversely affect the Company’s results of operations or financial position.
During the 2013 annual goodwill impairment tests, the Company concluded that the fair values of all reporting units were in excess of their carrying values and, therefore, goodwill was not impaired.
Information regarding goodwill by segment, as well as Corporate & Other, was as follows:
 
Retail
 
Group,
Voluntary &
Worksite
Benefits
 
Corporate
Benefit
Funding
 
Latin
America
 
Asia (1)
 
EMEA
 
Corporate
& Other (2)
 
Unallocated
Goodwill
 
Total
 
(In millions)
Balance at January 1, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
$
3,125

 
$
138

 
$
900

 
$
229

 
$
72

 
$
38

 
$
470

 
$
6,809

 
$
11,781

Accumulated impairment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Total goodwill, net
3,125

 
138

 
900

 
229

 
72

 
38

 
470

 
6,809

 
11,781

Goodwill allocation (3)
—

 
—

 
—

 
312

 
5,163

 
1,334

 
—

 
(6,809
)
 
—

Acquisitions (4)
—

 
—

 
—

 
—

 
39

 
—

 
—

 
—

 
39

Impairments (5)
—

 
—

 
—

 
—

 
—

 
—

 
(65
)
 
—

 
(65
)
Effect of foreign currency translation and other
—

 
—

 
—

 
(40
)
 
259

 
(39
)
 
—

 
—

 
180

Balance at December 31, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
3,125

 
138

 
900

 
501

 
5,533

 
1,333

 
470

 
—

 
12,000

Accumulated impairment
—

 
—

 
—

 
—

 
—

 
—

 
(65
)
 
—

 
(65
)
Total goodwill, net
3,125

 
138

 
900

 
501

 
5,533

 
1,333

 
405

 
—

 
11,935

Acquisitions
—

 
—

 
—

 
—

 
—

 
1

 
—

 
—

 
1

Impairments (6)
(1,692
)
 
—

 
—

 
—

 
—

 
—

 
(176
)
 
—

 
(1,868
)
Effect of foreign currency translation and other
—

 
—

 
—

 
26

 
(146
)
 
5

 
—

 
—

 
(115
)
Balance at December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
3,125

 
138

 
900

 
527

 
5,387

 
1,339

 
470

 
—

 
11,886

Accumulated impairment
(1,692
)
 
—

 
—

 
—

 
—

 
—

 
(241
)
 
—

 
(1,933
)
Total goodwill, net
1,433

 
138

 
900

 
527

 
5,387

 
1,339

 
229

 
—

 
9,953

Acquisitions (7)
—

 
—

 
—

 
1,140

 
—

 
1

 
—

 
—

 
1,141

Dispositions
—

 
—

 
—

 
—

 
—

 
(8
)
 
—

 
—

 
(8
)
Reduction of goodwill (5)
—

 
—

 
—

 
—

 
—

 
—

 
(65
)
 
—

 
(65
)
Reduction of accumulated impairment (5)
—

 
—

 
—

 
—

 
—

 
—

 
65

 
—

 
65

Effect of foreign currency translation and other
—

 
—

 
—

 
(79
)
 
(489
)
 
24

 
—

 
—

 
(544
)
Balance at December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
3,125

 
138

 
900

 
1,588

 
4,898

 
1,356

 
405

 
—

 
12,410

Accumulated impairment
(1,692
)
 
—

 
—

 
—

 
—

 
—

 
(176
)
 
—

 
(1,868
)
Total goodwill, net
$
1,433

 
$
138

 
$
900

 
$
1,588

 
$
4,898

 
$
1,356

 
$
229

 
$
—

 
$
10,542

______________
(1)
Includes goodwill of $4.7 billion, $5.2 billion and $5.4 billion from the Japan operations at December 31, 2013, 2012 and 2011, respectively.
(2)
For purposes of goodwill impairment testing, the $229 million of net goodwill in Corporate & Other at December 31, 2012, which resulted from goodwill acquired as part of the 2005 Travelers acquisition, was allocated to business units of the Retail; Group, Voluntary & Worksite Benefits; and Corporate Benefit Funding segments in the amounts of $34 million, $9 million and $186 million, respectively.
(3)
Goodwill associated with the ALICO Acquisition was allocated among the Company’s segments in the first quarter of 2011.
(4)
As of November 1, 2011, American Life’s current and deferred income taxes were affected by measurement period adjustments, which resulted in a $39 million increase to the goodwill recorded as part of the ALICO Acquisition related to Japan which is included in the Asia segment.
(5)
In 2011, the Company performed a goodwill impairment test on MetLife Bank, which was a separate reporting unit in Corporate & Other. A comparison of the fair value of the reporting unit, using a market multiple approach, to its carrying value indicated a potential for goodwill impairment. A further comparison of the implied fair value of the reporting unit’s goodwill with its carrying amount indicated that the entire amount of goodwill associated with MetLife Bank was impaired. Consequently, the Company recorded a $65 million goodwill impairment charge that is reflected as a net investment loss for the year ended December 31, 2011. In connection with the MetLife Bank Divestiture, goodwill and the related accumulated impairment were reduced by $65 million for the year ended December 31, 2013. See Note 3.
(6)
In connection with its annual goodwill impairment testing in 2012, the market multiple and discounted cash flow valuation approaches indicated that the fair value of the Retail Annuities reporting unit was below its carrying value. As a result, an actuarial appraisal, which estimates the net worth of the reporting unit, the value of existing business and the value of new business, was also performed. This appraisal also resulted in a fair value of the Retail Annuities reporting unit that was less than the carrying value, indicating a potential for goodwill impairment. A further comparison of the implied fair value of its goodwill with the reporting unit’s carrying amount indicated that the entire amount of goodwill associated with the Retail Annuities reporting unit was impaired. Consequently, the Company recorded a non-cash charge of $1.9 billion ($1.6 billion, net of income tax) for the impairment of the entire goodwill balance in the consolidated statements of operations for the year ended December 31, 2012. Of this amount, $1.4 billion was impaired at MetLife, Inc. There was no impact on income taxes.
(7)
See Note 3 for a discussion of the acquisition of ProVida, which is included in the Latin America segment.

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