Metro PCS 2009 Annual Report Download - page 138

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007
F-24
Due to the complex nature of the legal and factual issues involved in this class action matter, the outcome is not
presently determinable. If this matter were to proceed beyond the pleading stage, the Company could be required to
incur substantial costs and expenses to defend this matter and/or be required to pay substantial damages or
settlement costs, which could materially adversely affect the Company’s business, financial condition and results of
operations.
12. Capitalization:
Non-employee members of MetroPCS’ Board of Directors receive compensation for serving on the Board of
Directors, as provided in MetroPCS’ Non-Employee Director Remuneration Plan (the “Remuneration Plan”). The
Remuneration Plan provides that each non-employee director’s annual retainer and board and committee meeting
fees will be paid in cash and each director will receive options to purchase common stock. No shares of common
stock were issued to non-employee members of the Board of Directors during the years ended December 31, 2009
and 2008. During the year ended December 31, 2007, non-employee members of the Board of Directors were
issued 31,230 shares of common stock as payment of their annual retainer.
13. Share-Based Payments:
In accordance with ASC 718, the Company recognizes stock-based compensation expense in an amount equal to
the fair value of share-based payments, which includes stock options granted and restricted stock awards to
employees. The Company records stock-based compensation expense in cost of service and selling, general and
administrative expenses. Stock-based compensation expense was $47.8 million, $41.1 million and $28.0 million for
the years ended December 31, 2009, 2008 and 2007, respectively. Cost of service for the years ended December 31,
2009, 2008 and 2007 includes $4.2 million, $2.9 million and $1.8 million, respectively, of stock-based
compensation. Selling, general and administrative expenses for the years ended December 31, 2009, 2008 and 2007
include $43.6 million, $38.2 million and $26.2 million, respectively, of stock-based compensation.
Stock Option Grants
MetroPCS has two equity compensation plans (the “Equity Plans”) under which it grants options to purchase
common stock of MetroPCS: the Second Amended and Restated 1995 Stock Option Plan, as amended (“1995
Plan”), and the Amended and Restated 2004 Equity Incentive Compensation Plan (“2004 Plan”). The 1995 Plan was
terminated in November 2005 and no further awards can be made under the 1995 Plan, but all options previously
granted will remain valid in accordance with their original terms. In February 2007, the 2004 Plan was amended to
increase the number of shares of common stock reserved for issuance under the plan from 18,600,000 to a total of
40,500,000 shares. As of December 31, 2009, the maximum number of shares reserved for the 2004 Plan was
40,500,000 shares. Vesting periods and terms for stock option grants are determined by the plan administrator,
which is MetroPCS’ Board of Directors for the 1995 Plan and the Compensation Committee of the Board of
Directors of MetroPCS for the 2004 Plan. No option granted under the 1995 Plan has a term in excess of fifteen
years and no option granted under the 2004 Plan shall have a term in excess of ten years. Options granted during the
years ended December 31, 2009, 2008 and 2007 have a vesting period of one to four years.
Options granted under the 1995 Plan are exercisable upon grant. Shares received upon exercising options prior to
vesting are restricted from sale based on a vesting schedule. In the event an option holder’s service with the
Company is terminated, MetroPCS may repurchase unvested shares issued under the 1995 Plan at the option
exercise price. Options granted under the 2004 Plan are only exercisable upon vesting. Upon exercise of options
under the Equity Plans, new shares of common stock are issued to the option holder.
The value of the options is determined by using a Black-Scholes pricing model that includes the following
variables: 1) exercise price of the instrument, 2) fair market value of the underlying stock on date of grant,
3) expected life, 4) estimated volatility and 5) the risk-free interest rate. The Company utilized the following
weighted-average assumptions in estimating the fair value of the option grants in the years ended December 31,
2009, 2008 and 2007: