MetLife 2006 Annual Report Download - page 152

cancellation and average remaining years outstanding for vested Stock Options. Alternatively, the binomial model used by the Company
incorporates the contractual term of the Stock Options and then considers expected exercise behavior and a post-vesting termination rate,
or the rate at which vested options are exercised or expire prematurely due to termination of employment, to derive an expected life. The
post-vesting termination rate is determined from actual historical exercise and expiration activity under the Incentive Plans. Exercise
behavior in the binomial lattice model used by the Company is expressed using an exercise multiple, which reflects the ratio of exercise
price to the strike price of Stock Options granted at which holders of the Stock Options are expected to exercise. The exercise multiple is
derived from actual historical exercise activity.
The following weighted average assumptions, with the exception of risk-free rate, which is expressed as a range, were used to
determine the fair value of Stock Options issued during the:
2006 2005 2004
Years Ended December 31,
Dividendyield ........................................... 1.04% 1.19% 0.70%
Risk-freerateofreturn...................................... 4.17%-4.96% 3.34%-5.41% 3.69%
Expectedvolatility......................................... 22.00% 23.24% 34.85%
Exercisemultiple ......................................... 1.52 1.48 N/A
Post-vestingterminationrate.................................. 4.09% 5.19% N/A
Contractualterm(years)..................................... 10 10 10
Expectedlife(years)....................................... 6 6 6
Weighted average exercise price of stock options granted . . . . . . . . . . . . . . $50.21 $38.70 $35.28
Weighted average fair value of stock options granted . . . . . . . . . . . . . . . . . . $13.84 $10.09 $13.25
Compensation expense related to Stock Option awards expected to vest and granted prior to January 1, 2006 is recognized ratably
over the requisite service period, which equals the vesting term. Compensation expense related to Stock Option awards expected to vest
and granted on or after January 1, 2006 is recognized ratably over the requisite service period or the period to retirement eligibility, if
shorter. Compensation expense of $56 million, $50 million and $40 million related to Stock Options was recognized for the years ended
December 31, 2006, 2005 and 2004, respectively.
Had compensation expense for grants awarded prior to January 1, 2003 been determined based on the fair value at the date of grant
rather than the intrinsic value method, the Company’s earnings and earnings per common share amounts would have been reduced to the
following pro forma amounts for the following:
2005 2004
Years Ended
December 31,
(In millions,
except per share
data)
Netincomeavailabletocommonshareholders........................................ $4,651 $2,758
Add: Stock option-based employee compensation expense included in reported net income, net of income
tax................................................................... $ 33 $ 26
Deduct: Total stock option-based employee compensation determined under fair value based method for
allawards,netofincometax.................................................. $ (35) $ (44)
Proformanetincomeavailabletocommonshareholders ................................. $4,649 $2,740
Basic earnings per common share
Asreported............................................................... $ 6.21 $ 3.67
Proforma................................................................ $ 6.21 $ 3.65
Diluted earnings per common share
Asreported............................................................... $ 6.16 $ 3.65
Proforma................................................................ $ 6.15 $ 3.63
As of December 31, 2006, there was $41 million of total unrecognized compensation costs related to Stock Options. It is expected that
these costs will be recognized over a weighted average period of 1.67 years.
The following is a summary of Stock Option exercise activity for the:
2006 2005 2004
Years Ended
December 31,
(In millions)
Totalintrinsicvalueofstockoptionsexercised ........................................ $65 $39 $11
Cashreceivedfromexerciseofstockoptions......................................... $83 $72 $46
Taxbenefitrealizedfromstockoptionsexercised ...................................... $23 $13 $ 4
Performance Shares
Beginning in 2005, certain members of management were awarded Performance Shares under (and as defined in) the 2005 Stock Plan.
Participants are awarded an initial target number of Performance Shares with the final number of Performance Shares payable being
F-69MetLife, Inc.
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)