MetLife 2011 Annual Report Download - page 113

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
The obligations and expenses associated with these plans require an extensive use of assumptions such as the discount rate, expected rate of
return on plan assets, rate of future compensation increases, healthcare cost trend rates, as well as assumptions regarding participant demographics
such as rate and age of retirements, withdrawal rates and mortality. Management, in consultation with its external consulting actuarial firms, determines
these assumptions based upon a variety of factors such as historical performance of the plan and its assets, currently available market and industry data
and expected benefit payout streams. The assumptions used may differ materially from actual results due to, among other factors, changing market and
economic conditions and changes in participant demographics. These differences may have a significant effect on the Company’s consolidated
financial statements and liquidity.
The Subsidiaries also sponsor defined contribution savings and investment plans (“SIP”) for substantially all employees under which a portion of
employee contributions is matched. Applicable matching contributions are made each payroll period. Accordingly, the Company recognizes
compensation cost for current matching contributions. As all contributions are transferred currently as earned to the SIP trust, no liability for matching
contributions is recognized in the consolidated balance sheets.
Stock-Based Compensation
As more fully described in Note 18, the Company grants certain employees and directors stock-based compensation awards under various plans
that are subject to specific vesting conditions. The cost of all stock-based transactions is measured at fair value at grant date and recognized over the
period during which a grantee is required to provide goods or services in exchange for the award. Although the terms of the Company’s stock-based
plans do not accelerate vesting upon retirement, or the attainment of retirement eligibility, the requisite service period subsequent to attaining such
eligibility is considered nonsubstantive. Accordingly, the Company recognizes compensation expense related to stock-based awards over the shorter of
the requisite service period or the period to attainment of retirement eligibility. An estimation of future forfeitures of stock-based awards is incorporated
into the determination of compensation expense when recognizing expense over the requisite service period.
Foreign Currency
Assets, liabilities and operations of foreign affiliates and subsidiaries are recorded based on the functional currency of each entity. The determination
of the functional currency is made based on the appropriate economic and management indicators. With the exception of certain foreign operations,
primarily Japan, where multiple functional currencies exist, the local currencies of foreign operations are the functional currencies. Assets and liabilities of
foreign affiliates and subsidiaries are translated from the functional currency to U.S. dollars at the exchange rates in effect at each year-end and income
and expense accounts are translated at the average rates of exchange prevailing during the year. The resulting translation adjustments are charged or
credited directly to other comprehensive income or loss, net of applicable taxes. Gains and losses from foreign currency transactions, including the
effect of re-measurement of monetary assets and liabilities to the appropriate functional currency, are reported as part of net investment gains (losses) in
the period in which they occur.
Discontinued Operations
The results of operations of a component of the Company that either has been disposed of or is classified as held-for-sale are reported in
discontinued operations if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the Company
as a result of the disposal transaction and the Company will not have any significant continuing involvement in the operations of the component after the
disposal transaction.
Earnings Per Common Share
Basic earnings per common share are computed based on the weighted average number of common shares, or their equivalent, outstanding during
the period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.
Diluted earnings per common share include the dilutive effect of the assumed: (i) exercise or issuance of stock-based awards using the treasury stock
method; (ii) settlement of stock purchase contracts underlying common equity units using the treasury stock method; and (iii) settlement of accelerated
common stock repurchase contracts. Under the treasury stock method, exercise or issuance of stock-based awards and settlement of the stock
purchase contracts underlying common equity units is assumed to occur with the proceeds used to purchase common stock at the average market
price for the period. See Notes 14, 18 and 20.
Litigation Contingencies
The Company is a party to a number of legal actions and is involved in a number of regulatory investigations. Given the inherent unpredictability of
these matters, it is difficult to estimate the impact on the Company’s financial position. Liabilities are established when it is probable that a loss has been
incurred and the amount of the loss can be reasonably estimated. Except as otherwise disclosed in Note 16, legal costs are recognized in other
expenses as incurred. On a quarterly and annual basis, the Company reviews relevant information with respect to liabilities for litigation, regulatory
investigations and litigation-related contingencies to be reflected in the Company’s consolidated financial statements. It is possible that an adverse
outcome in certain of the Company’s litigation and regulatory investigations, or the use of different assumptions in the determination of amounts
recorded, could have a material effect upon the Company’s consolidated net income or cash flows in particular quarterly or annual periods.
Separate Accounts
Separate accounts are established in conformity with insurance laws and are generally not chargeable with liabilities that arise from any other
business of the Company. Separate account assets are subject to general account claims only to the extent the value of such assets exceeds the
separate account liabilities. Assets within the Company’s separate accounts primarily include: mutual funds, fixed maturity and equity securities,
mortgage loans, derivatives, hedge funds, other limited partnership interests, short-term investments and cash and cash equivalents. The Company
reports separately, as assets and liabilities, investments held in separate accounts and liabilities of the separate accounts if (i) such separate accounts
are legally recognized; (ii) assets supporting the contract liabilities are legally insulated from the Company’s general account liabilities; (iii) investments are
directed by the contractholder; and (iv) all investment performance, net of contract fees and assessments, is passed through to the contractholder. The
Company reports separate account assets meeting such criteria at their fair value which is based on the estimated fair values of the underlying assets
comprising the portfolios of an individual separate account. Investment performance (including investment income, net investment gains (losses) and
changes in unrealized gains (losses)) and the corresponding amounts credited to contractholders of such separate accounts are offset within the same
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