Metro PCS 2011 Annual Report Download - page 78

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67
For the license impairment test performed as of September 30, 2011, the aggregate fair value of the indefinite-lived
intangible assets was in excess of the aggregate carrying values. There also have been no subsequent indicators of impairment,
including those indicated in ASC 360, and accordingly no subsequent interim impairment tests were performed.
Share-Based Payments
We account for share-based awards exchanged for employee services in accordance with ASC 718 (Topic 718,
“Compensation - Stock Compensation”). Under ASC 718, share-based compensation cost is measured at the grant date, based
on the estimated fair value of the award, and is recognized as expense over the employee's requisite service period.
We have granted restricted stock awards that entitle the holder to receive shares of common stock which become fully
tradable upon vesting. The restricted stock awards granted generally vest on a four-year vesting schedule with 25% vesting on
the first anniversary date of the award and the remainder pro-rata on a monthly or quarterly basis thereafter, subject to a service
condition that relates only to vesting. The estimated compensation expense, which is equal to the fair value of the awards on
the date of grant, is recognized on a straight-line basis over the vesting period.
We have also granted nonqualified stock options. Most of our stock option awards include a service condition that relates
only to vesting. The stock option awards generally vest in three to four years from the grant date with 25% vesting on the first
anniversary date of the award. Compensation expense is amortized on a straight-line basis over the requisite service period for
the entire award, which is generally the maximum vesting period of the award.
The determination of the fair value of stock options using an option-pricing model is affected by our common stock
valuation as well as assumptions regarding a number of complex and subjective variables. The Board of Directors uses the
closing price of our common stock on the date of grant as the fair market value for our common stock. The volatility
assumption is based on a combination of the historical volatility of our 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 are used in
conjunction with our historical volatility because of the lack of sufficient relevant history equal to the expected term. 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 stock 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 on the grant date appropriate for the term of the employee stock options. The
dividend yield assumption is based on the expectation of no future dividend payouts by us.
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. We utilized the following weighted-average assumptions in estimating the fair value
of the options grants for the years ended December 31, 2011 and 2010:
Year Ended December 31,
2011 2010
Expected dividends —% —%
Expected volatility 49.88% 54.74%
Risk-free interest rate 2.06% 2.24%
Expected lives in years 5.00 5.00
Weighted-average fair value of options:
Granted at fair value $ 6.49 $ 3.23
Weighted-average exercise price of options:
Granted at fair value $ 14.37 $ 6.62
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.