Cricket Wireless 2010 Annual Report Download - page 132

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Stock Options
The estimated fair value of the Company’s stock options is determined using the Black-Scholes model. All
stock options were granted with an exercise price equal to the fair value of the common stock on the grant date. The
weighted-average grant date fair value of employee stock options granted during the years ended December 31,
2010 and 2009 was $7.14 and $14.83 per share, respectively, which was estimated using the following weighted-
average assumptions:
2010 2009
As of
December 31,
Expected volatility ................................................... 60% 54%
Expected term (in years) . ............................................. 5.75 5.75
Risk-free interest rate................................................. 1.89% 2.15%
Expected dividend yield . . ............................................. — —
The determination of the fair value of stock options using an option valuation model is affected by the
Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. Through
June 30, 2010, the volatility assumption was based on a combination of the historical volatility of the Company’s
common stock and the volatilities of similar companies over a period of time equal to the expected term of the stock
options. The volatilities of similar companies were used in conjunction with the Company’s historical volatility
because of the lack of sufficient relevant history for the Company’s common stock equal to the expected term.
Commencing July 1, 2010, the Company determined it had sufficient relevant history and thus began using its
historical volatility. The expected term of employee stock options represents the weighted-average period the stock
options are expected to remain outstanding. The expected term assumption is estimated based primarily on the
options’ vesting terms and remaining contractual life and employees’ expected exercise and post-vesting
employment termination behavior. The risk-free interest rate assumption is based upon observed interest rates
at the end of the period in which the grant occurred appropriate for the term of the employee stock options. The
dividend yield assumption is based on the expectation of no future dividend payouts by the Company.
126
LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)