|
LIBERTY MUTUAL HOLDING COMPANY INC.
<br />Notes to Consolidated Financial Statements
<br />(dollars in millions, except per share amounts)
<br />(unaudited)
<br />Effective April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(8), "Share-Bared Payments" ("SEAS 123(R)'~. The Company has
<br />elected to continue to measure its awards at their intrinsic value. Compensation cost related to these plans is determined in accordance with plan formulas and recorded
<br />ratably over the years the employee service is provided. The adoption of SFAS 123(8) did not impact the Company's consolidated financial statements.
<br />Effective January 1, 2006, the Company adopted Financial Accounting Standards Board (FASB) Statement of Position No. FAS 115-1 and FAS 1241, "Meaning ofOtber-
<br />Than-Temporary Impairnrentt and Izr Application to Certain Inuertmenh,"which provides guidance on determining whether investment impairment is other-than-temporary
<br />regardless of the intent to sell and when a security is impaired due to fluctuations in interest rates. The adoption of the statement did not have a material impact on the
<br />Company's consolidated financial statements.
<br />Future Adoption of New Accounting Standards
<br />In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Meaturementl' ("SEAS 15TH. This statement defines fair value,
<br />establishes a framework for measuring fair value under accounting principles generally accepted in the United States, and enhances disclosures about fair value
<br />measurements. SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The statement establishes a fair value
<br />hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels ("Level 1, 2 and 3'~. Level 1 inputs are observable inputs
<br />that reflect quoted prices for identical assets or liabilities in active markets the Company has the ability to access at the measurement date. Level 2 inputs are observable
<br />inputs, other than quoted prices included in Level 1, for the asset or liability. Ixvel 3 inputs are unobservable inputs reflecting the reporting entity's estimates of the
<br />assumptions that market participants would use in pricing the asset or Lability (including assumptions about risk). Quantitative and qualitative disclosures will focus on
<br />the inputs used to measure fair value for both recurring and non-recurring fair value measurements and the effects of the measurements in the financial statements. The
<br />Company is required to adopt SFAS 157 effective January 1, 2008. The Company is evaluating the impact of adoption, but does not expect the provisions of SFAS 157
<br />to have a material effect on its results of operations, financial condition or liquidity.
<br />In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "-lhe Fair [/slue Option for FinancialA.rntr and Financial LiabiJitier, Including an
<br />Amendment of SFAS 11S' ("SEAS 159'x. SFAS 159 pemtits all entities to choose, at specified election dates, to measure eligible items at fair value (the "fair value
<br />option'. An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date
<br />eliminating complex hedge accounting provisions. The decision about whether to elect the fair value option is applied on an instrument by instrument basis and is
<br />irrevocable unless a new election date occurs and is applied only to an entire instrument. SFAS 159 also provides guidance on disclosure requirements designed to
<br />facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for the Company
<br />January 1, 2008. The Company does not expect the provisions of SFAS 159 to have a material effect on its results of operations, financial condition, or liquidity.
<br />In September 2006, the Emerging Issues Task Force (EITF) released issue No. OG-4, "Acrounting for Deferred Comperaatian and Pattretirement Bent A.rpedt of Endotrement
<br />Split-Do!!ar life Inraranre Anangementr" ("EITF 06-4'~. This issue provides guidance on the recognition and measurement of assets related to collateral assignment split-
<br />dollarlife insurance arrangements. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Company will adopt EITF 06-04 on January 1, 2008.
<br />The Company does not expect the provisions of EITF 06-4 to have a material effect on its results of operations, financial condition, or Gquidiry.
<br />In March 2007, the EITF released issue No. 06-10, "Accounting for Defemd Compensation and Portntirement Benefrt A.pectt of Co!lateralAtrignment Split-Do!!ar life Insurance
<br />Arrangements ("EITF 06-10'x. This issue requires a company to recognize a liability for future Gfe insurance benefits in accordance with SFAS 106 of Opinion 12. EITF
<br />OG-10 is effective for the Company for fiscal years beginning after December 15, 2007. The Company will adopt EITF 06-10 on January 1, 2008, and is evaluating the
<br />impact of adoption, but does not expect the provisions of EITF 06-10 to have a material effect on its results of operations, financial condition or liquidity.
<br />In December 2007, the FASB issued SFAS No. 160, "Acounting for Namm~trolGng Interests" ("SEAS 160'). SFAS 160 will result in the consolidation of all non-controlling
<br />interests within the income statement and balance sheet of the Company for all consolidated subsidiaries. SFAS 160 is required to be adopted on January 1, 2009.
<br />Prospective adoption is required, except for the required reclasses which are to be applied retrospectively. Early adoption is not permitted. The Company is in the
<br />process of evaluating the impact of adoption.
<br />In December 2007, the FASB issued SFAS No. 141(8), "Applying the Acquisition Method" ("SPAS 141(R)'~. This issue will result in significant changes to accounting for
<br />business combinations. Prospective adoption is required and early adoption is not permitted. The Company is required to adopt SFAS 141(8) effective January 1, 2009.
<br />The Company is in the process of evaluating the impact of adoption.
<br />Accumulated Other Comprehensive Income
<br />Other comprehensive income consists principally of unrealized gains and losses on certain im-estments in debt and equity securities, foreign currency translation
<br />adjustments, and minimum pension liability.
<br />The components of accumulated other comprehensive income, net of related deferred acquisition costs and taxes, for the years ending December 31, 2007, 2006, and
<br />2005 are as follows:
<br /> 2007 2006 2005
<br />Unrealized gains on securities $574 $644 $656
<br />Foreign currenty translation adjustments and other 456 179 68
<br />Minimum pension liability adjustment (285) (20) (332)
<br />Accumulated other comprehensive income $745 $803 $392
<br />
|