01—Abstract
Summary
Summary of the 10-K filed February 27, 2013. Cited figures are marked; the original filing is the authoritative source.
MetLife's 2012 Form 10-K (filed February 27, 2013) reports a year of mixed results: GAAP income from continuing operations fell to $1.3 billiona from $6.4 billion in 2011, driven mainly by a $6.7 billion unfavorable swing in net derivative results (from a $4.8 billion gain to a $1.9 billion loss), a $1.9 billion pre-tax goodwill impairment on the U.S. Retail Annuities unit, and a $1.2 billion charge tied to a global review of DAC, reserves and intangibles.
Net income available to common shareholders was $1.2 billionb, or $1.12 per diluted share, versus $6.2 billion in 2011. Management's non-GAAP operating earnings measure rose about 21% to $5.8 billion, and operating earnings available to common shareholders reached $5.7 billion, up from $4.7 billion, reflecting higher investment results, asset-based fee growth and lower catastrophe losses. The company remains a very large institution, with $836.8 billion in total assets, a $533 billion general account portfolio, and roughly 90 million customers across the U.S., Japan, Latin America, Asia and EMEA.
Shareholder equity rose to $64.5 billionc, helped by a $5.3 billion increase in accumulated other comprehensive income. Management guided to 2013 operating earnings roughly flat with 2012 despite low interest rates, and targets an operating return on common equity at the low end of 12%-14% by 2016.
The filing also highlights material risk areas for investors: persistent low interest rates that compress spreads and pressure legacy guarantees, variable annuity guarantee exposure, European sovereign stress, potential designation as a non-bank systemically important financial institution, pending regulatory and litigation matters (including unclaimed property and sales practices), and a dilutive common equity unit settlement in 2013-2014. The company de-registered as a bank holding company and is winding down MetLife Bank, and it agreed to acquire Chile's Provida.
02—Key points
Key Highlights
- GAAP net income available to common shareholders fell to $1.2 billion ($1.12 per diluted share) from $6.2 billion ($5.76) in 2011, primarily due to derivative losses and non-cash charges.
- Operating earnings rose to $5.8 billion from $4.8 billion, and operating earnings available to common shareholders reached $5.7 billion, up 22% year over year.
- A $1.9 billion pre-tax ($1.6 billion after-tax) goodwill impairment hit the U.S. Retail Annuities reporting unit, and a $1.2 billion charge reflected a global review of DAC, reserves and intangibles.
- Net derivative results swung to a $1.9 billion loss from a $4.8 billion gain, largely from interest-rate moves, FX and a nonperformance risk adjustment on variable annuity embedded derivatives.
- Total assets were $836.8 billion, including a $533 billion general account portfolio, with separate account assets of $235.4 billion; stockholders' equity reached $64.5 billion.
- Management expects 2013 operating earnings roughly in line with 2012 and targets an operating return on common equity at the low end of 12%-14% by 2016, supported by $1 billion in efficiency initiatives.
- MetLife de-registered as a bank holding company, is winding down MetLife Bank, and remains exposed to possible non-bank SIFI designation with enhanced capital and regulatory requirements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 27, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $68.15B$70.24B | −3.0% |
| Operating Expenses | $17.75B$18.54B | −4.2% |
| Operating Income | $1.15B$6.13B | −81.2% |
| Interest Expense | $871.00M$975.00M | −10.7% |
| Net Income | $1.32B$6.42B | −79.4% |
| EPS (Basic) | $1.12$5.81 | −80.7% |
| EPS (Diluted) | $1.12$5.76 | −80.6% |
| Shares Outstanding (Basic) | 1.07B1.06B | +1.1% |
| Shares Outstanding (Diluted) | 1.08B1.07B | +0.8% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings fall so sharply in 2012 even though operating earnings grew?
GAAP results are heavily affected by volatile items excluded from operating earnings. Net derivative losses of $1.9 billion (versus a $4.8 billion gain in 2011), a $1.9 billion goodwill impairment on U.S. retail annuities, and a $1.2 billion DAC/reserve review charge all reduced GAAP income. Operating earnings, which exclude these items, rose on stronger investment results, higher asset-based fees and lower catastrophe losses.
How much of the 2012 decline was due to the goodwill impairment?
The U.S. Retail Annuities goodwill impairment was $1.9 billion pre-tax, or $1.6 billion after tax, with the entire goodwill balance for that unit written off. It is a non-cash charge, but it permanently removes that goodwill from the balance sheet.
What are the main risks to MetLife's earnings outlook?
Key risks include a sustained low interest rate environment that compresses investment spreads and raises pension costs, exposure to variable annuity guarantees in volatile equity markets, European sovereign debt concerns, possible designation as a non-bank SIFI that could limit dividends and buybacks, pending unclaimed property and sales practices litigation, and dilution from the 2013-2014 common equity unit settlements.
Can MetLife continue paying its dividend and repurchasing stock?
The company paid $0.74 per share in common dividends in 2012 and moved to quarterly payments, with a $0.185 first-quarter 2013 dividend. The board retains discretion, and dividends can be restricted by insurance subsidiary regulators, the terms of preferred stock and junior subordinated debt ('dividend stopper' provisions), and potential non-bank SIFI rules. About $1.3 billion remained under repurchase authorizations, but no shares were repurchased in 2012.
06—Continue