Sprint - Nextel 2005 Annual Report Download - page 108

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SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Advertising Expense
We recognize advertising expense as incurred. These expenses include production, media and other promotional
and sponsorship costs. Advertising expenses totaled $1.4 billion in 2005, $989 million in 2004, and $946 million
in 2003.
Research and Development
We recognize research and development expense as incurred. Research and development expenses totaled
$47 million in 2005, $32 million in 2004, and $16 million in 2003.
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary differences between the financial
reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which
the differences are expected to reverse. Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of these benefits is considered to be more likely than not. See note 13 for
more information.
Earnings (Loss) per Common Share
Basic earnings (loss) per common share is calculated by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings
per common share adjust basic earnings per common share for the effects of potentially dilutive common shares.
Potentially dilutive common shares primarily include the dilutive effects of shares issuable under our equity
plans computed using the treasury stock method, and the dilutive effects of shares issuable upon the conversion
of our convertible senior notes computed using the if-converted method.
Dilutive securities consisting of shares issuable under our equity plans used in calculating earnings per common
share were 20.5 million shares for 2005. All 10.3 million shares issuable upon the assumed conversion of our
convertible senior notes could potentially dilute earnings per common share in the future but were excluded from
the calculation of diluted earnings per common share for 2005 due to their antidilutive effects. Additionally,
about 65.6 million shares issuable under the equity plans that could also potentially dilute earnings per common
share in the future were excluded from the calculation of diluted earnings per common share in 2005 as the
exercise prices exceeded the average market price during this period.
Shares issuable under our equity plans were antidilutive in 2004 because we incurred net losses from continuing
operations. Although not used in the determination of earnings per common share for 2004, our dilutive
securities totaled 12.3 million shares in 2004. About 88 million shares issuable under the equity plans could
potentially dilute earnings per common share in the future, but were excluded from the calculation of diluted
earnings per common share in 2004 as the exercise prices exceeded the average market price during this period.
Shares issuable under our equity plans were antidilutive in 2003 because we incurred net losses from continuing
operations. Although not used in the determination of earnings per common share for 2003, our dilutive
securities totaled 3.0 million shares in 2003. About 103 million shares issuable under the equity plans could
potentially dilute earnings per common share in the future, but were excluded from the calculation of diluted
earnings per common share in 2003 as the exercise prices exceeded the average market price during this period.
F-13