MetLife 2009 Annual Report Download - page 199

Options. Additional shares carried forward from the Stock Incentive Plan and available for issuance under the 2005 Stock Plan were
13,018,939 at December 31, 2009. There were no shares carried forward from the 2000 Directors Stock Plan. Each share issued under the
2005 Stock Plan in connection with a Stock Option or Stock Appreciation Right reduces the number of shares remaining for issuance under
that plan by one, and each share issued under the 2005 Stock Plan in connection with awards other than Stock Options or Stock Appreciation
Rights reduces the number of shares remaining for issuance under that plan by 1.179 shares. The number of shares reserved for issuance
under the 2005 Directors Stock Plan are 2,000,000. At December 31, 2009, the aggregate number of shares remaining available for issuance
pursuant to the 2005 Stock Plan and the 2005 Directors Stock Plan were 47,903,044 and 1,838,594, respectively.
Stock Option exercises and other stock-based awards to employees settled in shares are satisfied through the issuance of shares held in
treasury by the Company. Under the current authorized share repurchase program, as described previously, sufficient treasury shares exist to
satisfy foreseeable obligations under the Incentive Plans.
Compensation expense related to awards under the Incentive Plans is recognized based on the number of awards expected to vest, which
represents the awards granted less expected forfeitures over the life of the award, as estimated at the date of grant. Unless a material
deviation from the assumed rate is observed during the term in which the awards are expensed, any adjustment necessary to reflect
differences in actual experience is recognized in the period the award becomes payable or exercisable. Compensation expense of
$69 million, $123 million and $146 million, and income tax benefits of $24 million, $43 million and $51 million, related to the Incentive
Plans was recognized for the years ended December 31, 2009, 2008 and 2007, respectively. Compensation expense is principally related to
the issuance of Stock Options, Performance Shares and Restricted Stock Units. The majority of the awards granted by the Holding Company
are made in the first quarter of each year.
Stock Options
All Stock Options granted had an exercise price equal to the closing price of the Holding Company’s common stock as reported on the
New York Stock Exchange on the date of grant, and have a maximum term of ten years. Certain Stock Options granted under the Stock
Incentive Plan and the 2005 Stock Plan have or will become exercisable over a three year period commencing with the date of grant, while
other Stock Options have or will become exercisable three years after the date of grant. Stock Options issued under the 2000 Directors Stock
Plan were exercisable immediately. The date at which a Stock Option issued under the 2005 Directors Stock Plan becomes exercisable would
be determined at the time such Stock Option is granted.
A summary of the activity related to Stock Options for the year ended December 31, 2009 is presented below. The aggregate intrinsic
value was computed using the closing share price on December 31, 2009 of $35.35 and December 31, 2008 of $34.86, as applicable.
Shares Under
Option Weighted Average Exercise Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(Years) (In millions)
Outstanding at January 1, 2009 . . . . . . . . . . . . . . . . . . . 26,158,275 $41.73 5.73 $ —
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,450,662 $23.61
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (254,576) $30.23
Cancelled/Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . (794,655) $39.79
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (407,301) $48.72
Outstanding at December 31, 2009 . . . . . . . . . . . . . . . . 30,152,405 $38.51 5.50 $ —
Aggregate number of stock options expected to vest at
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . 29,552,636 $38.58 5.43 $ —
Exercisable at December 31, 2009 . . . . . . . . . . . . . . . . . 21,651,876 $38.94 4.28 $ —
The fair value of Stock Options is estimated on the date of grant using a binomial lattice model. Significant assumptions used in the
Company’s binomial lattice model, which are further described below, include: expected volatility of the price of the Holding Company’s
common stock; risk-free rate of return; expected dividend yield on the Holding Company’s common stock; exercise multiple; and the post-
vesting termination rate.
Expected volatility is based upon an analysis of historical prices of the Holding Company’s common stock and call options on that common
stock traded on the open market. The Company uses a weighted-average of the implied volatility for publicly-traded call options with the
longest remaining maturity nearest to the money as of each valuation date and the historical volatility, calculated using monthly closing prices
of the Holding Company’s common stock. The Company chose a monthly measurement interval for historical volatility as it believes this better
depicts the nature of employee option exercise decisions being based on longer-term trends in the price of the underlying shares rather than
on daily price movements.
The binomial lattice model used by the Company incorporates different risk-free rates based on the imputed forward rates for
U.S. Treasury Strips for each year over the contractual term of the option. The table below presents the full range of rates that were used
for options granted during the respective periods.
Dividend yield is determined based on historical dividend distributions compared to the price of the underlying common stock as of the
valuation date and held constant over the life of the Stock Option.
F-115MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)