Metro PCS 2007 Annual Report Download - page 64

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December 31,
2007
December 31,
2006
Expected dividends..................................................................................................... 0.00% 0.00%
Expected volatility...................................................................................................... 42.69% 35.04%
Risk-free interest rate ................................................................................................. 4.54% 4.64%
Expected lives in years ............................................................................................... 5.00 5.00
Weighted-average fair value of options:
Granted at below fair value ....................................................................................... $ — $ 10.16
Granted at fair value.................................................................................................. $ 9.89 $ 3.75
Weighted-average exercise price of options:
Granted at below fair value ....................................................................................... $ — $ 1.49
Granted at fair value.................................................................................................. $ 22.41 $ 9.95
The Black-Scholes model requires the use of subjective assumptions including expectations of future dividends
and stock price volatility. Such assumptions are only used for making the required fair value estimate and should not
be considered as indicators of future dividend policy or stock price appreciation. Because changes in the subjective
assumptions can materially affect the fair value estimate, and because employee stock options have characteristics
significantly different from those of traded options, the use of the Black-Scholes option pricing model may not
provide a reliable estimate of the fair value of employee stock options.
During the years ended December 31, 2006 and 2007, the following awards were granted under our Option Plans:
Grants Made During
the Quarter Ended
Number of
Options
Granted
Weighted
Average
Exercise
Price
Weighted
Average
Market Value
per Share
Weighted
Average
Intrinsic Value
per Share
March 31, 2006.............................................................................. 2,869,989 $ 7.15 $ 7.15 $ 0.00
June 30, 2006................................................................................. 534,525 $ 7.54 $ 7.54 $ 0.00
September 30, 2006....................................................................... 418,425 $ 8.67 $ 8.67 $ 0.00
December 31, 2006........................................................................ 7,546,854 $ 10.81 $ 11.33 $ 0.53
March 31, 2007.............................................................................. 1,008,300 $ 11.33 $ 11.33 $ 0.00
June 30, 2007................................................................................. 5,912,098 $ 23.78 $ 23.78 $ 0.00
September 30, 2007....................................................................... 906,000 $ 30.60 $ 30.60 $ 0.00
December 31, 2007........................................................................ 650,600 $ 15.68 $ 15.68 $ 0.00
Compensation expense is recognized over the requisite service period for the entire award, which is generally the
maximum vesting period of the award.
Customer Recognition and Disconnect Policies
When a new customer subscribes to our service, the first month of service and activation fee is included with the
handset purchase. Under GAAP, we are required to allocate the purchase price to the handset and to the wireless
service revenue. Generally, the amount allocated to the handset will be less than our cost, and this difference is
included in Cost Per Gross Addition, or CPGA. We recognize new customers as gross customer additions upon
activation of service. Prior to January 23, 2006, we offered our customers the Metro Promise, which allowed a
customer to return a newly purchased handset for a full refund prior to the earlier of 7 days or 60 minutes of use.
Beginning on January 23, 2006, we expanded the terms of the Metro Promise to allow a customer to return a newly
purchased handset for a full refund prior to the earlier of 30 days or 60 minutes of use. Customers who return their
phones under the Metro Promise are reflected as a reduction to gross customer additions. Customers’ monthly
service payments are due in advance every month. Our customers must pay their monthly service amount by the
payment date or their service will be suspended, or hotlined, and the customer will not be able to make or receive
calls on our network. However, a hotlined customer is still able to make E-911 calls in the event of an emergency.
There is no service grace period. Any call attempted by a hotlined customer is routed directly to our interactive
voice response system and customer service center in order to arrange payment. If the customer pays the amount due
within 30 days of the original payment date then the customer’ s service is restored. If a hotlined customer does not
pay the amount due within 30 days of the payment date the account is disconnected and counted as churn. Once an
account is disconnected we charge a $15 reconnect fee upon reactivation to reestablish service and the revenue
associated with this fee is deferred and recognized over the estimated life of the customer.