Cricket Wireless 2011 Annual Report Download - page 136

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LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 (excluding options granted in
connection with the stock option exchange program discussed below) during the years ended December 31, 2011,
and 2010 was $6.22 and $7.14 per share, respectively, which was estimated using the following weighted-
average assumptions:
As of
December 31,
2011 2010
Expected volatility ................................................. 65% 60%
Expected term (in years) ............................................ 5.77 5.75
Risk-free interest rate ............................................... 1.04% 1.89%
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.
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